Total Utility - INOMICS

Total utility refers to the overall level of happiness or satisfaction that a consumer experiences by consuming a certain amount of a good ... Skiptomaincontent Publish AllCategories AllDisciplines TheSiteforEconomists Mainnavigation Close Jobs Courses Programs Online Scholarships Conferences Blog Teach EconomicsTermsA-Z Advice EconDirectory 📖INOMICSHandbook Jobs Professor AssistantProfessor/Lecturer Postdoc PhDCandidate SeniorResearcher/GroupLeader Researcher/Analyst ResearchAssistant/Technician Administration Executive/SeniorIndustryPosition Mid-LevelIndustryPosition JuniorIndustryPosition Graduate/Traineeship Practitioner/Consultant Internship OtherJobs AllJobs Courses SummerSchools OnlineCourses ProfessionalTraining SupplementaryCourses Other AllCourses Programs PhDPrograms Master'sPrograms MBAPrograms Bachelor'sPrograms Other AllPrograms Online RemoteJobs OnlineCourses OnlinePrograms OnlineConferences AllOnline Scholarships Fellowships PostgraduateScholarships UndergraduateScholarships Prizes&Contests FinancialAid Research/ProjectFunding OtherFunding AllScholarships Conferences Conferences Workshops Exhibitions/Fairs Other AllConferences Blog AllBlog Teach AllTeach EconomicsTermsA-Z AllEconomicsTermsA-Z Advice CareerAdvice StudyAdvice WorkAbroad StudyAbroad Rankings CampusReviews RecruiterAdvice AllAdvice EconDirectory University/College Graduate/BusinessSchool ResearchInstitute Bank/CentralBank PrivateCompany/Industry Consulting/LegalFirm Association/NGO Government Publisher Journal Other AllEconDirectory 📖INOMICSHandbook All📖INOMICSHandbook EconomicsTermsA-Z-Themostimportanttermsineconomics. a b c d e f g h i j k l m n o p q r s t u v w x y z en de fr it es EconomicsTermsA-Z TotalUtility ByMirjamSarahSalish 08June2020 Totalutilityreferstotheoveralllevelofhappinessorsatisfactionthataconsumerexperiencesbyconsumingacertainamountofagoodorservice.Whilemarginalutility measuresthechangeinutilityofconsumingoneadditionalunit,totalutilitymeasuresthelevelofhappinessassociatedwiththeconsumptionofacertainquantityofthegood. Utilityisanimportantconceptineconomics,becauseneoclassicaleconomictheoryisbasedonthepremisethatrationalindividualsmaximizetheirutility.Thisimpliesthatall(economic)decisionsandinteractionscanbeanalyzedbystudyingtheutilitymaximizationproblemofthepeopleinvolved.Thisisusuallydescribedbyautilityfunction,i.e.,amathematicalfunctionthatassignsavaluetothelevelofhappinessanindividualexperienceswhenconsumingacertainbundleofgoodsandservices.Thisfunctionrepresentsthepreferencesofaconsumeroverasetofalternatives. Commonly,weassumethatutilitycanbemeasuredinmonetaryunits,meaningthatitisacardinalconceptforus.Thetotalutilityofconsumingagoodis equivalenttotheamountofmoneythatwouldmaketheconsumerequallyashappytoreceiveaswhentheyconsumethegood.Forexample,thelevelofhappinessorsatisfactionyouobtainfrom achocolatebarcanbemeasuredbytheamountofmoneythatwouldgiveyouthesamelevelofhappinessasconsumingthechocolatebar.Cardinalutilitymeansthatthenumberweassociatewiththeutilityoftheconsumptionofagoodhasameaningandwecanuseitforcomparisons.Forexample,iftheconsumptionof1chocolatebargivesmeatotalutilityof1andtheconsumptionof1pieceofcakegivesmeatotalutilityof2,thenwecanconcludethatnotonlydoIprefercaketoachocolatebar,butIlike caketwiceasmuchasachocolatebar.Analternateconceptwouldbeordinalutility-seetheFurtherReadingsectionbelowforadescription. SuggestedOpportunities Master'sProgram Posted1dayago Master'sprogrammeinQuantitativeEconomicsandFinance(MiQE/F) Starts31Aug atUniversityofSt.Gallen in SanktGallen,Switzerland 41426 40 UniversityofSt.Gallen Master'sProgram Posted2daysago MasterofScienceinAppliedEconomics atUniversityofNeuchâtel in Neuchâtel,Switzerland 4515 4790 UniversityofNeuchâtel Master'sProgram Posted2daysago Master'sprogrammeinEconomics Starts31Aug atUniversityofSt.Gallen in SanktGallen,Switzerland 41426 40 UniversityofSt.Gallen Whenstudyingeconomics,youcannotgetaroundthetermmarginalutility,whichdescribestheincreaseinhappinessorwell-beingfromconsumingoneadditionalunit.Thedifferencebetweenmarginalandtotalutilityisthatthefirsttermonlymeasuresthechangeinhappinessassociatedwiththelastunitthatwasconsumed.Thelattertermmeanwhilereferstotheoveralllevelofhappinessorwell-beingderivedfromconsumingacertainquantity.Thismeansthattotalutilityofconsumingacertainquantityisequivalenttosummingupthemarginalutilityofallunits.Marginalutilitycanbepositiveornegativedependingonwhetherconsumingoneadditionalunitincreasesordecreasessomeone'srelativehappiness.Ifthemarginalutilityofthelastunitispositive,thentotalutilityisincreasing.Ifit'snegative,totalutilityisdecreasing. Letuslookatanexampletobetterunderstandthedifference.Inthetablebelowwecanseethetotalaswellasthemarginalutilitythatanindividual,letuscallherAnne,obtainsfromconsumingacertainnumberofcupsofcoffee.ConsumingonecupofcoffeegivesAnneatotalutilityof5,andasthisisthefirstcup,itisalsothemarginalutilityofthefirstcup.So,themarginalutilityofthefirstcupisequalthe totalutilityatoneunitconsumed. Numberofcupsofcoffee 0 1 2 3 4 5 Totalutility(measuredinmonetaryunits) 0 5 7 8 8 5 Marginalutility   5 2 1 0 -3 DrinkingtwocupsofcoffeegivesAnneatotalutilityof7,sohermarginalutilityisequalto2(thechangeintotalutilityfromthefirsttothesecondcup).Inotherwords,thesecondcupofcoffeestillincreasesAnne’shappinessorwellbeing,althoughtheincreaseissmallerthanfromthefirstcup.Forthefourthcup,themarginalutilityisequaltozeroandweseethatthetotalutilityofAnnefromthethirdtothefourthcupdoesnotchange.Anne’stotalutilityofconsumingfivecupsislowerthanthatofconsumingtwo,three,orfourcups,andthismeansthatthemarginalutilityofthefifthcupisnegative,sinceAnnehashadenoughcoffeeanddoesn’twantmore.Thisisduetothelawofdiminishingmarginalreturns.Asmentionedabove,thetotalutilityofacertainquantityisequaltothesumofthemarginalutilities.Forexample,thetotalutilityofthesecondcupisequaltotheincreaseinutilityfromconsumingthefirstcup(5)plustheincreaseinutilityfromconsumingthesecondcup(2),whichisequalto7.  Furtherreading Someeconomistsarguethat(total)utilityshouldnotbeinterpretedasacardinalconcept,butratheronanordinalscale.Ordinalutilitymeansthatthevalueassociatedwiththeutilityoftheconsumptionofagoodcanonlybeusedtomakecomparisonstellinguswhichconsumptionbundlesarepreferredtoothers,butnothingmore.Ifforexample,achocolatebargivesyouautilityof1andapieceofcakeautilityof2thenaccordingtoordinalutilitywecanonlyinferthatyouprefercaketoachocolatebar.Theactualnumberscannotbeinterpreted,i.e.,wecannotsaythatapieceofcakemakesyoutwiceashappyasachocolatebar.G.Debreu,inRepresentationofapreferenceorderingbyanumericalfunction, 1954, establishedtheconditionsunderwhichapreferenceorderingcanberepresentedbyautilityfunction.Youmayalreadyhaveseenordinalutilityintheformofindifferencecurves.Allconsumptionbundlesthatareonthesameindifferencecurvegivetheindividualthesametotalutility.Consumptionbundlesonhigherindifferencescurvesarepreferred,butthedifferenceinthetotallevelofutilityismeaningless. Goodtoknow Theconsumptionofagoodthatincreaseshappinesshasatotalutilitythatispositive.Somegoods,thosethat actuallyreduceutilityorgiveyoudisutilityarecalled"bads".Forexample,airpollutionisclearlyabad.Andhereweencounteradifficulty. Howcanwemeasurethedecreaseinutilityapersonexperiencesfromhavingtoconsumepollutedair?Tomeasurethedisutilityofbadswecanaskanindividualhowmuchheorshewouldbewillingtopayinordertonothavetoconsumethebad.Alternatively,wecanaskhowmuchmoneywewouldhavetogivetothepersonconsumingthebadinordertokeephisorherutilityunchanged. AlsoInteresting EconomicsTermsA-Z LagrangianOptimization diminishingmarginalutility preferences MirjamSarahSalish utility TotalUtility marginalutility RelatedItems 2022BarcelonaWorkshoponRegionalandUrbanEconomics:Theeconomicsofapandemic.LessonsfromCOVID-19 AssistantProfessor(withthepossibilityoftenuretrack)inMathematicalEconomics PositionofAssistantorAssociateProfessorinOperationsManagement/OperationsResearch/IndustrialOrganization FeaturedAnnouncements job Wissenschaftliche*nMitarbeiter*in–empirischeMakroökonomik program Master'sprogrammeinQuantitativeEconomicsandFinance(MiQE/F) program Master'sprogrammeinEconomics program MasterofScienceinEconomics|MasterofScienceinFinancial… job Post-doctoralResearcherinOperationsResearchandEnergyMarkets course EcoModSchoolofModelingandDataScience-eThekwini(Cityof… UpcomingDeadlines Oct03,2022StrategicEngagement&CommunityManager(m/w/d) Oct03,20222022BarcelonaWorkshoponRegionalandUrbanEconomics:Theeconomicsofapandemic.LessonsfromCOVID-19 Oct10,2022JuniorProfessorship(withouttenure)inAppliedMicroeconomicTheory Oct15,2022ModiglianiResearchGrants-Worth€10,000peryear Oct15,2022PhDPosition(DoctoralResearcher)-DepartmentofFinancialMarkets × Logintoyouraccount EmailAddress Password Forgotyourpassword?Clickhere. 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