Lesson: Consumption Choices

Total Utility and Diminishing Marginal Utility (continued)

Total Utility and Diminishing Marginal Utility (continued)

💡
  • The law of diminishing marginal utility describes a pattern in consumer behavior. It means that a customer is less pleased with a business or product each time they visit the business or buy the product. In other words, a consumer becomes less satisfied as they consume the same thing over and over again.

Notice that marginal utility diminishes as additional units are consumed, which means that each subsequent unit of a good consumed provides less additional utility. For example, the first T-shirt José picks is his favorite and it gives him an addition of 22 utils. The fourth T-shirt is just something to wear when all his other clothes are in the wash and yields only 18 additional utils. This is an example of the law of diminishing marginal utility, which holds that the additional utility decreases with each unit added. Diminishing marginal utility is another example of the more general law of diminishing returns we learned earlier.

T-Shirts (Quantity) Total Utility Marginal Utility Movies (Quantity) Total Utility Marginal Utility
1 22 22 1 16 16
2 43 21 2 31 15
3 63 20 3 45 14
4 81 18 4 58 13
5 97 16 5 70 12
6 111 14 6 81 11
7 123 12 7 91 10
8 133 10 8 100 9


The rest of the table above shows the quantity of movies that José attends, and his total and marginal utility from seeing each movie. Total utility follows the expected pattern: it increases as the number of movies that José watches rises. Marginal utility also follows the expected pattern: each additional movie brings a smaller gain in utility than the previous one. The first movie José attends is the one he wanted to see the most, and thus provides him with the highest level of utility or satisfaction. The fifth movie he attends is just to waste time. Notice that total utility is also the sum of the marginal utilities.  

The table below looks at each point on the budget constraint graph and adds up José’s total utility for five possible combinations of T-shirts and movies. 

Point T-Shirts Movies Total Utility
P 4 0 81 + 0 = 81
Q 3 2 63 + 31 = 94
R 2 4 43 + 58 = 101
S 1 6 22 + 81 = 103
T 0 8 0 + 100 = 100