Why do consumers seek to maximize their utility? Is marginal utility more useful than total utility in the decision making of consumers? Why or why not? Is marginal utility per dollar spent a more accurate view than marginal or total utility? Why or why not?
Consumers maximize their utility because they are concerned with achieving the highest level of satisfaction from the consumption of goods or services with the available budgets. According to the rationality theory in economics, it is rational for people to choose what is best for them always, so they should buy the most satisfying goods or services (Stull, 2014). Naturally, people buy what has more benefits than harm. Utility maximization theory also suggests that people prefer more to less. The concept of scarcity and choice also explains why people prefer more to less. There are unlimited wants and needs for people against scarcity of resources. Therefore, people maximize utility in order to achieve the highest number of wants using the least amount of resources because the wants are unlimited and the resources are scarce.
Marginal utility is more useful than the total utility in decision making of consumers because it measures the additional utility obtained for every single unit of commodity consumed (Cipu and Gheorghe, 2015). Therefore, marginal utility tells the consumer the additional amount of goods he or she needs before he or she becomes satisfied. On the other hand, total utility does not show specifically how much a consumer should consume before achieving maximum utility considering the resources used to get that utility (Tengstam, 2014). In other words, it is easier to determine maximum utility using marginal utility rather than total utility. Marginal utility per dollar is more accurate than marginal utility or total utility because it shows the change in utility for every dollar spent, so the consumer is able to utilize his money or resources effectively.
Cipu, C., and Gheorghe, C. (2015). Some Applications in Economy for Utility Functions Involving Risk Theory. Economics and Finance, 22, 595–600.
Stull, W.J. (2014). Taking the Plunge: Teaching the Microeconomics of Entrepreneurship. International Advances in Economic Research, 20(2) 139-150.
Tengstam, S. (2014). Disability and marginal utility of income: Evidence from hypothetical choices. Health Economics (United Kingdom), 23(3), 268-282.