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Econ: What are Total Utility and Marginal Utility? 4 Views
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Description:
What are Total Utility and Marginal Utility? Marginal utility is the satisfaction that comes from consuming one more unit of something, where total utility is the total satisfaction that comes from consuming a good or service, overall. Total utility comes from adding up all marginal utility.
Transcript
- 00:00
And finance Allah shmoop what our total utility and marginal
- 00:06
utility utility is in the eye of the beholder One
- 00:11
person might see high utility in some delicious slices of
- 00:15
pineapple pizza while another person only sees negative utility because
- 00:19
they believe pineapple on pizza together are tantamount to blasphemy
Full Transcript
- 00:22
Well same goes with a nice car which has not
- 00:25
only transport utility but social utility One person might decide
- 00:29
they'll gain some much needed social points with a snazzy
- 00:33
a set of wheels there while another person might be
- 00:35
afraid they'd be you know beauty is a tool you
- 00:37
know Been there done that A convertible might offer high
- 00:40
utility around for someone living in Southern California and low
- 00:44
utility for someone living in New York where they take
- 00:47
the subway everywhere High quality socks for Christmas Yeah hi
- 00:50
utility If that's just what you needed Maybe you can't
- 00:53
get enough Willie socks or you collect socks with cool
- 00:56
patterns and need a real hobby Quickly Low utility If
- 01:00
you're a ten year old boy who was expecting something
- 01:02
decent not not socks Yeah Sorry there pal How much
- 01:06
utility Something Khun give someone Depends on that person's needs
- 01:09
and preferences utility even has its own standard measurement You
- 01:14
tools Yeah that's one standard utilities you don't well getting
- 01:17
into the nitty gritty of utility We have marginal utility
- 01:20
and total utility Marginal utility is the UDA Lt's a
- 01:24
consumer games from consuming one more unit of a good
- 01:27
or service Those marginal yodels added up well Is Total
- 01:32
Utility III the total amount of utility gained from a
- 01:34
good or service So let's take popcorn Salty buttery movie
- 01:38
theater popcorn you can't resist It's buttery goodness Plus you
- 01:42
don't go to the movies that off and you deserve
- 01:44
this popcorn In general we decide to buy something when
- 01:46
the march on the utility of a good or service
- 01:48
is greater than the marginal cost of it Well in
- 01:50
this case you're willing to pay that five bucks for
- 01:52
the popcorn because it's so worth it Yes all fourteen
- 01:56
thousand calories in that bucket Will the first bite of
- 01:58
popcorn is the most delicious Ah high marginal utility and
- 02:02
it gets your taste buds watering and ready for more
- 02:05
The second bite is great too as is the third
- 02:07
and fourth Lots of you tells Eventually though you don't
- 02:10
feel so good you just consumed more fake butter than
- 02:13
you'd wish on your worst enemy All of a sudden
- 02:15
you stopped eating the buttery deliciousness It's not worth a
- 02:19
full blown a stomach ache in the eight thousand calories
- 02:22
for the rest of the night So as you can
- 02:23
see your demand for popcorn like your demand Kerr for
- 02:26
most things is downward sloping The marginal value of that
- 02:30
in plus one piece of popcorn declines really fast when
- 02:34
marginal cost is greater than marginal utility while we stop
- 02:37
consuming additional marginal units of a good in this case
- 02:41
the marginal cost of eating one more handful of popcorn
- 02:43
plus the money you already paid for it just isn't
- 02:45
worth the marginal benefit you'd get out of the next
- 02:48
hand Phil since well it'll make you feel worse overall
- 02:51
All right well if you're the kind of person who
- 02:52
does keep eating it well even though you're not enjoying
- 02:55
it anymore because you paid for it well that's falling
- 02:58
for the sunk cost Fallaci yet don't do that It
- 03:02
doesn't make sense to pay for negative marginal utility Just
- 03:06
take your net positive utility and walk away slowly right
- 03:10
that's the sunk cost already paid It sunk its guns
- 03:12
Nothing you can do about it ever to get it
- 03:14
back All right well this downward spiral of marginal utility
- 03:17
starting out high with first unit of consumption and finishing
- 03:20
low with the last unit of consumption is called the
- 03:23
law of diminishing marginal returns As we consume more and
- 03:27
more of a good or service are marginal utility from
- 03:29
each additional unit consumed gets less and less Each bite
- 03:33
is less enjoyable than the last While some goods and
- 03:36
services we consumer subject to diminishing marginal utility like food
- 03:40
others can have constant or increasing marginal utility When people
- 03:44
first became addicted to a social media platform it's likely
- 03:47
their marginal utility was increasing which is why they started
- 03:51
using it more and more and more and more and
- 03:53
then became hooked And this is why we care about
- 03:55
marginal utility It often changes as we consume more and
- 03:58
more of a certain good or service If you want
- 04:01
to know how and why people consumers a bit of
- 04:03
a good or service the way they do well take
- 04:05
a look at their marginal utility when we want to
- 04:08
take a step back and look at the big picture
- 04:09
of a good or service Yeah that's where total utility
- 04:12
comes in If you want to compare goods and services
- 04:15
against each other while you can compare their total utilities
- 04:18
for instance don't regret that bucket of popcorn Your total
- 04:22
utility from popcorn consumption was decidedly worth the cost Each
- 04:26
bit of marginal utility from each bite added to the
- 04:30
total utility of the entire popcorn experience So it was
- 04:33
a good overall net of everything to you if anything
- 04:37
Well you should regret that one colonel and you still
- 04:39
have stuck in the back Your teeth there With any
- 04:41
luck it'll come out by Tuesday All right that's enough 00:04:43.615 --> [endTime] You tools Ah
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