Marginal utility is the additional satisfaction or benefit a consumer receives from consuming one more unit of a good or service. It measures the change in utility gained from that extra unit
. Key points about marginal utility include:
- It can be positive, zero, or negative. Positive marginal utility means the additional unit increases total satisfaction, zero means no change, and negative means it decreases overall satisfaction
- The concept helps explain consumer behavior and how much of a product people are willing to buy, as people generally continue consuming as long as marginal utility exceeds marginal cost
- Marginal utility typically decreases as more units are consumed, a principle known as the law of diminishing marginal utility. This means the first unit consumed usually provides the highest satisfaction, and each subsequent unit adds less utility than the previous one
- Marginal utility is related to total utility, where total utility is the overall satisfaction from all units consumed, and marginal utility is the incremental change in that satisfaction from one additional unit
Marginal utility is fundamental in economics for understanding consumer choices, pricing, and taxation policies, such as justifying progressive taxes based on the decreasing value of additional income to wealthier individuals
. In summary, marginal utility quantifies the extra satisfaction from consuming one more unit of a good or service and is central to economic analysis of consumption behavior.
