okay and what I want to do in this video is give you an introduction into the idea of what the economic concept of utility actually is okay so obviously we're on economics I don't even know why still have that in there but I do okay so what is utility and I will always probably start a lot of these videos by saying it's always a good idea to know what you're talking about before you talk about something so the definition of utility is it's the satisfaction or it's the happiness that you get from consuming goods and services over a particular day or a week or a month or whatever so if you consume a cup of carpet coffee and how much happiness do you get from that coffee that's what utility is okay it is genuine happiness now the thing about utility is that we measure it in imaginary units called utils okay so if you have two chocolate bars you have let's say a kinder and I don't know a Mars bar okay you prefer the kinder bar the kinder bar is going to give you more utils of happiness than eating the Mars bar then both might make you happier but we're saying is what we're stating now is that we can accurately measure which we cannot in any way shape or form but we're pretending we can accurately measure the exact amount of happiness that you get from consuming one good over the other so you could say well a Kinder Bueno gives me ten utils of happiness whereas a Mars bar gives me seven utils of happiness okay so that's what we're talking about least at the moment to remember those numbers wouldn't what those numbers I've just made up off the top of my head they have no meaning in reality whatsoever but they will change and we'll talk about why they will change in later videos okay so what's total utility well total utility is the entire satisfaction or happiness that a consumer receives from consuming a number of goods and services so if you go through a day and you you add up all the happiness that you got from each good and service that you have consumed that day and remember they're measured in utils the total happiness or total utility for that day is just the addition of all of the utils derived from consuming each of those goods and services that you have done that day and I say a day could be a day a week a month a year 10 years whatever it's irrelevant okay but that's what totally utility is the total happiness that you get from consuming all goods and services that you have consumed over a certain period of time now what really the main thing about economics is an economists think at the margin okay and what that means is they say okay how much extra either happiness in this case or benefit or whatever will I get from doing this versus what is the extra cost of doing this action okay and more in that way later but what is marginal utility well the reason I put in Ricky Gervais extras here is because this word extra is really important marginal utility is the extra satisfaction the extra happiness the extra utils a consumer gains from consuming only one extra unit of the good the next and unit of the same good okay that's what that is so it's how much extra happiness do you get from consuming one extra unit of God now I am currently recording this video in Mongolia and and absolutely loved my experience here I have to say I'm and the reason why I mentioned that is because there are no McDonald's in Mongolia so a very enterprising person would be the person that would try to bring McDonald's to monger because I'm sure you can make a huge amount of money but still I'm going to use an example of my own Big Mac consumption okay so there's may Jonathan trainer okay Big Mac consumption okay so what I'm saying to you here is these are the quantities here and this is the total happiness that I get and what I'm trying to do is to show you how marginal utility is calculated so what I'm saying to you obviously if I've consumed nothing I have zero total utility okay so we're saying of consume no big maximum well actually nothing but we're just talking about Big Macs and I've consumed not known so therefore I am I have no total utility as I consumed my first Big Mac so that's I've gone from zero to one so there's one extra like total utility goes from 0 to 10 the extra happiness that first Big Mac gave me is actually 10 utils now most people would be satisfied with that I'm a bit of a big boy I like to eat a good bit of food will force me so I'm going to try and have another Big Mac so after my second so I'll go from 1 to 2 my total utility went up to 15 my total utility includes the amount of happiness I got from the first Big Mac and the amount of extra happiness that I got from the second so extra happiness for the first extra happiness for the second and therefore my total utility is now 15 well what is the marginal utility that I derived from consuming my second Big Mac well it's 15 minus 10 which is 5 okay so if the total utility that I have after consuming two Big Macs is 15 and the total utility I had after consuming my first Big Mac is 10 well the second Big Mac must have given me five extra utils of happiness so the idea here is that it's just simply the second number minus the first the second total utility - the first nuts how you can work at marginal utility a very important point which we will come to later on but I want to bring this up now is why did the marginal utility for and I want you to think about and I'm sure it's obvious ok the reason that it fell was I was hungry I had one Big Mac it satisfied me a lot I wasn't as hungry after the first Big Mac and I had a second one so it's not going to give me that much happiness simply because it's not satisfying me the same way the first one did also I've already eaten a Big Mac so now it's a cigar and another one ok whatever and then we go on to the third Big Mac so after three Big Macs my total utility is 17 but after two Big Macs it was 15 so what's the marginal utility of the third Big Mac don't say three Big Macs because that's not correct it's the third it's the one extras the extra happiness you get from consuming one extra unit of a good and the marginal utility is 17 minus 15 which is 2 now I'm not going to go through them all because I don't wanna waste your time and make the video incredibly boring but what do we see here is that the marginal utility is falling falling falling and there's a few reasons for this okay the first one is that I'm obviously getting fuller and fuller and fuller and the second thing is that I'm getting bored in some way of consuming the same good think a better song that you loved absolutely loved and then what did you do you played it over and over again and most likely it plated until you became sick of it and a new song came along and you maybe loved that one and the process began again now this don't forget is all in one sitting this wouldn't apply of the it's called the law of diminishing marginal utility we're gonna look at it again later video so don't be afraid of the name just see that it's obvious that the extra happiness you get from consecutively consuming the same good would fall and it's obvious wasn't getting fuller and fuller and fuller now what happens here is the fifth one gives me no extra happiness and what that means is I would be indifferent eating that fifth Big Mac at a price of zero I pay money first but I would be indifferent whether or not I ate it at a price of zero and see the way this one actually takes away from my happiness so that means that you would have to pay me money to eat that okay so I mean I've never had six in a row but I'll give it a try one day and but this is what we're talking about here you would have to pay me money to eat that because that is causing me displeasure the extra happiness is a minus the margin utility is negative okay now what I would like you to do is to pause the video here in a second and have an attempt at drawing two separate graphs the first graph all based on this one bit of tip this one table of numbers here the first graph is the graph of total utility so what I want you to do is on the y-axis I want you for the first question to put total utility it's gonna be you two utility anyway but total utility and on the x-axis the one going across the screen I want you to put add the numbers two quantities also at zero to six and then for the second question on the y-axis which is the one going up and down I want you to put marginal utility and on the x-axis I want you to put the quantity so pause the video now and then see if you can draw those two graphs and once you reckon you have an answer of some description then M press play if you have no idea what I'm talking about that's a fair enough point just watch the answer and then go back to this and point in the video and see if you can do it yourself okay well I hope you had a chance to do that all right and don't be afraid of making mistakes it's the most important thing to be making mistakes because you learn best from those mistakes so I haven't put zero here so I've started off at one so just to kind of bring that to your attention and the first I think was 15 and we got what I want you to see here this is the total utility of course what I want you to see here is that for up to four Big Macs yes the total utility is increasing but the rate at which it is increasing is slowing down it goes constant here doesn't have to it could just go straight to him but then eventually it will start to calm down and the the reason that it's coming down from here to here from five to six don't forget the sixth Big Mac gave me negative marginal utility and that's what's pulling down the total utility in that one okay I hope that makes sense now just to kind of show you you would have had to do this have done this anyway but this is the calculation of the marginal utility based on these numbers I'm not gonna go through them again cause I don't want the video to get crazy long which is probably too long already and again this is starting off at 1 this is 0 here and this is minus 4 so if we kind of put the graph on what do we see if it Mars and utility it's constantly falling why is it falling the reason that it's falling is because the law of diminishing marginal utility as you can Seck it of lee consume extra units of the exact same good the extra happiness you get Falls and I really hope that makes sense