Marginal Utility


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.


Loading the player...

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.

  1. Marginal Analysis

    An examination of the additional benefits of an activity compared ...
  2. Demand Theory

    A theory relating to the relationship between consumer demand ...
  3. Law Of Diminishing Marginal Utility

    The Law Of Diminishing Marginal Utility is a law of economics ...
  4. Intertemporal Choice

    An economic term describing how an individual's current decisions ...
  5. Total Utility

    The aggregate level of satisfaction or fulfillment that a consumer ...
  6. Efficiency Principle

    An economic theory that states that the greatest benefit to society ...
Related Articles
  1. Economics

    Explaining Marginal Utility

    Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.
  2. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  3. Entrepreneurship

    Adam Smith And "The Wealth Of Nations"

    Adam Smith's 1776 classic may have had the largest global impact on economic thought.
  4. Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  5. Economics

    The Uncertainty Of Economics: Exploring The Dismal Science

    Learning about the study of economics can help you understand why you face contradictions in the market.
  6. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  7. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  8. Fundamental Analysis

    The Difference Between Finance And Economics

    Learn the differences between these closely related disciplines and how they inform and influence each other.
  9. Forex Education

    Free Market Maven: Milton Friedman

    As proponent of free market capitalism, this economist changed the way the world's economies operate.
  10. Economics

    What is Deadweight Loss?

    Deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  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 >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center