Marginal Utility

Loading the player...

What is 'Marginal Utility'

Marginal utility is 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.

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.

RELATED TERMS
  1. Total Utility

    The aggregate level of satisfaction or fulfillment that a consumer ...
  2. Utility

    1. An economic term referring to the total satisfaction received ...
  3. Marginal Benefit

    The additional satisfaction or utility that a person receives ...
  4. Utilities Sector

    A category of stocks for utilities such as gas and power. The ...
  5. Law Of Diminishing Marginal Utility

    The Law Of Diminishing Marginal Utility is a law of economics ...
  6. Utility Revenue Bond

    A type of municipal bond that is issued to finance utility projects, ...
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. Economics

    Economics Basics: Utility

    Investopedia explains the concept of utility, an abstract concept where the units that assign an amount of utility are arbitrary and are only used for representing relative value.
  3. Professionals

    Marginal Benefit and Marginal Cost

    Marginal Benefit and Marginal Cost. Learn about the Law of Diminishing Marginal Utility in regards to marginal costs and benefits to the consumer.
  4. Sectors

    The Debt Report: The Utilities Sector

    Discover how blue chip U.S. utilities companies are using debt, and why it was important for the industry to deleverage after the financial crisis.
  5. Personal Finance

    Microeconomics: Assumptions and Utility

    by Marc DavisThe decision-making process of the individual consumer is critically important in the study of microeconomics because consumer spending accounts for about 70% of the economy.Consumers ...
  6. Economics

    Macroeconomics: Supply, Demand and Elasticity

    By Stephen Simpson DemandDemand is driven by utility – the pleasure or satisfaction that a consumer obtains from consuming a good or service. Total utility is a function of the quantities ...
  7. Mutual Funds & ETFs

    5 Popular Utilities ETFs in 2016 (XLU, NEE)

    Discover how the five most popular utilities ETFs for 2016 can add growth and income to your portfolio. Four of these utilities ETFs outperformed the S&P 500.
  8. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  9. Economics

    What's Utility?

    Utility has two meanings depending on the context.
  10. Mutual Funds & ETFs

    ETF Flows: Utilities ETFs Stand Tall in 2016

    Find out which utilities exchange-traded funds (ETFs) have benefited the most from the huge surge in fund inflows in the early part of 2016.
RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    Learn how marginal utility influences consumer choice under the law of diminishing marginal utility and consumer decisions ... Read Answer >>
  2. How do businesses calculate their marginal utility?

    See why, even though businesses do not have marginal utility of their own, a firm can apply the concept of diminishing marginal ... Read Answer >>
  3. What is the difference between marginal utility and marginal benefit?

    Learn more about the different interpretations, uses, and implications of marginal benefit and marginal utility in economic ... Read Answer >>
  4. What is the difference between marginal utility and marginal value?

    Find out what marginal utility and marginal value mean in economics and why these terms sometimes overlap to describe the ... Read Answer >>
  5. What is the marginal utility of income?

    Take a deeper look at marginal utility of income, why individuals tend to be more satisfied with more income and how measuring ... Read Answer >>
  6. What is the utility function and how is it calculated?

    Learn what the utility function is in microeconomic theory and how it is calculated based on a functional form that represents ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center