Overview
This lecture explains the concepts of marginal utility and total utility, how to graph their curves, and the relationship between them, using the example of acquiring tennis balls.
Marginal Utility Curve
- Marginal utility measures the additional satisfaction (utility) gained from consuming one more unit of a good.
- Utility is measured in abstract units called "utility units," not in dollars.
- The first unit of a good gives the highest marginal utility; each additional unit typically gives less.
- Marginal utility for tennis balls example: 100 (1st), 80 (2nd), 60 (3rd), 40 (4th), 20 (5th), 0 (6th), -20 (7th).
- The marginal utility curve is generally downward sloping, reflecting diminishing marginal utility.
- Negative marginal utility means consuming more actually reduces overall satisfaction.
Total Utility Curve
- Total utility is the overall satisfaction received from consuming a certain number of units.
- To find total utility, sum the marginal utility of each additional unit.
- Example totals: 100 (1st), 180 (2nd), 240 (3rd), 280 (4th), 300 (5th), 300 (6th), 280 (7th).
- Total utility increases as long as marginal utility is positive; it flattens when marginal utility is zero, and decreases if marginal utility becomes negative.
- The slope of the total utility curve at any point equals the marginal utility at that quantity.
Relationships and Economic Implications
- The law of diminishing marginal utility explains why each additional unit is valued less.
- The downward sloping marginal utility curve is consistent with the downward sloping demand curve in economics.
- In markets, people will pay less for each additional unit due to decreasing marginal utility.
Key Terms & Definitions
- Marginal Utility — The extra satisfaction from consuming one additional unit of a good.
- Total Utility — The total satisfaction gained from all units consumed.
- Utility Units — Abstract units representing satisfaction, not measured in money.
- Diminishing Marginal Utility — Principle that marginal utility decreases as more units are consumed.
Action Items / Next Steps
- Practice graphing marginal and total utility curves using different examples.
- Review the law of demand and its connection to marginal utility.
- Be prepared to calculate total utility from marginal utility values for homework.