Marginal Utility

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DEFINITION of 'Marginal Utility'

The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility.

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BREAKING DOWN 'Marginal Utility'

For example, if you were really thirsty you'd get a certain amount of satisfaction from a glass of water. This satisfaction would probably decrease with the second glass, and then decrease even more with the third glass. The additional amount of satisfaction that comes with each additional glass of water is marginal utility.

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RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  2. How can you find the demand function from the utility function?

    A consumer's budget constraint is used alongside the utility function to derive the demand function. The utility function ... Read Full Answer >>
  3. How can marginal utility explain the 'diamond/water paradox'?

    One of the most disconcerting problems to Adam Smith, the father of modern economics, was that he could not resolve the issue ... Read Full Answer >>
  4. What is "marginalism" in microeconomics and why is it important?

    "Marginalism" describes both a method of analysis and a theory of value in economics. According to this theory, individuals ... Read Full Answer >>
  5. How do businesses calculate their marginal utility?

    Strictly speaking, businesses do not experience marginal utility like individuals do. Companies are made up of people, and ... Read Full Answer >>
  6. How do economists and psychologists calculate diminishing marginal utility differently?

    Some economists and psychologists agree on marginal utility, while others disagree. The universal applicability of the law ... Read Full Answer >>
  7. What does the law of diminishing marginal utility explain?

    In economics, the law of diminishing marginal utility states that the marginal utility of a good or service declines as its ... Read Full Answer >>
  8. What is the difference between marginal utility and marginal benefit?

    Marginal utility describes the benefit that one economic actor receives from consuming one additional unit of a good, while ... Read Full Answer >>

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