Scarcity, Utility, Marginal Utility, and Total Utility: How to Measure Utilities

What Does Scarcity Mean?
Scarcity means a lack of enough quantity of anything. It refers to a situation where your requirements are far more than available goods. So, you experience a shortage of items or resources to satisfy your demands. This shortage is referred to as scarcity.

In economics, this shortage or scarcity of resources forces you to make decisions and choose things carefully to get the utmost satisfaction from the limited options available. 

The resources are either limited or not fully available for use, thereby leading to scarcity because of the unlimited wants of human beings.

Utility in Economics 

Utility, in Economics, refers to the quantum of satisfaction derived by consumers while consuming goods or services. 

Consumer satisfaction is a major factor determining all the demand and supply activities of consumers. Prices are set based on the utility that goods provide to consumers.

How to Measure Utility

• Utility is measured in terms of the degree of a consumer's willingness to pay a certain amount of money to gain that utility.
• It is rather an assumption that the product has a certain amount of utility equal to the price paid by the consumer to have it.
• The consumer is ready to pay an increased amount of price to obtain that level of satisfaction, as he wants to get it instead of changing to other products or services. This means that he is getting a good level of utility from that good or service. So the product has that much amount of utility that he is willing to pay to have it.
• Utility is measured under different algorithms.

Now, let us take a look at those different categories of utility before measuring the marginal and total utilities of some products/goods.

Total Utility

Total utility refers to the total quantity or measurement of satisfaction derived by a consumer by purchasing different numbers of units of the product. If you consume one unit, you will get a certain level of satisfaction. If you get another unit, the level will increase. So the total satisfaction derived goes on increasing as you go on adding more units. This total satisfaction derived is known as the total utility of that product for you.

Marginal Utility

Marginal utility refers to the extra amount of satisfaction derived by you when you consume one more unit of anything. 

Normally, a consumer will derive more satisfaction from the first unit that he consumes. As he goes on increasing his consumption, the extra unit that he purchases will not give him as much satisfaction as he derived from the previous unit. So the extra satisfaction is decreased gradually as he increases his quantity. This quantum of extra satisfaction is known as the marginal utility of that product to him.

For example, take the case of your child eating a chocolate bar. The first candy will give him the utmost satisfaction. The second candy may not be so appealing, as he already got satisfied by the first candy. If you give him a third and a fourth one, he may not want to eat it anymore. On the other hand, if you give only one candy and then a cup of ice cream or milkshake, he can derive the same amount of satisfaction from both the candy and the ice cream or milkshake. So his total utility will be more than what he gets by eating 3 or 4 choco bars.

Example - 1

Chocó bar candy	Utility/ Marginal utility	Total Utility
First candy	60	60
Second candy	30	90
Third candy	20	110
Fourth candy	10	120

Example -2

Item	Utility/ Marginal utility	Total Utility
Chocó bar candy	60	60
Ice cream	60	120

From the above two examples, you are able to see that in the first example you are getting 120 units of utility by consuming 4 candies, whereas you are able to get the same amount of 120 units of utility by eating one chocobar and one ice cream only, as per 2nd example.

Now, suppose one choco bar costs $1, and one cup of ice cream also costs $1.

So, in example 1, you are paying $4 to get 120 units of utility, whereas in example 2, you will be paying only $2 to get the same satisfaction of 120 units of utility.

Now, we come to know that additional units of consumption of the same product will go on decreasing the satisfaction. This is known as diminishing marginal utility. The total satisfaction will increase up to a certain extent, and then it may cease to increase after a point. In the above example, if you take another candy, the marginal utility can be zero units, and so total utility will remain the same as 120 units only.

On the other hand, if you shift to other products, your utility will be greater because the utility from other products will be more than that got from consuming the same product in most cases.

So utility plays a major role in economics while fixing the prices of commodities.