Utility
What is Utility?
Utility is the satisfaction or benefit a consumer gets from consuming a good or service.
Economists use utility to model how consumers choose, assuming people act to maximize total satisfaction. It is measured in hypothetical units called utils. Utility is subjective and varies across individuals.
Utility: a worked example
Ana rates her first slice of pizza at 20 utils, the second at 16, the third at 10, the fourth at 4, and the fifth at negative 2 because she feels sick. Total utility after four slices is 20 + 16 + 10 + 4 = 50 utils. Adding the fifth slice takes 2 utils away, leaving 48, so total utility falls even though she has eaten more. Marginal utility, the change in total utility from one extra slice, is 16 for the second slice and 10 for the third, which shows satisfaction rising at a slower and slower rate. Ana's total utility peaks at four slices, the last quantity where marginal utility is still positive.
The mistake students make with utility
Students read a falling marginal utility column and conclude that total utility is falling too. The pull is that both words describe satisfaction, so a smaller number in one column looks like less of everything. Marginal utility dropping from 16 to 10 still adds 10 utils to the total, so total utility keeps climbing. Total utility only declines once marginal utility turns negative. Check the sign of marginal utility, not its direction, before saying total utility fell.
Utility questions
What is a util in economics?
A util is a made-up unit economists use to put a number on satisfaction so consumer choices can be compared and graphed. Utils have no fixed size and no market price, so saying a sandwich is worth 30 utils only means something next to another number from the same person. Utils exist to rank options, not to measure happiness in any physical way.
Can utility be compared between two people?
Utility cannot be compared across people in any reliable way, because there is no shared scale. If Ravi reports 40 utils from a concert ticket and Dana reports 20, that does not prove Ravi enjoys concerts twice as much, since each person picked their own numbering. Economists therefore use utility to explain how one consumer ranks their own options, and they use willingness to pay in dollars when they need comparisons across buyers.
What is the difference between total utility and marginal utility?
Total utility measures the whole stack of satisfaction from every unit consumed, while marginal utility measures the satisfaction added by one more unit. Eating three tacos worth 18, 12, and 6 utils gives total utility of 36 and a marginal utility of 6 on the third taco. Marginal utility is the change between two total utility figures, so it is the slope of the total utility curve at that quantity.
Related terms
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