Marginal Utility

AAA

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.

INVESTOPEDIA EXPLAINS '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. 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

    A law of economics stating that as a person increases consumption ...
  4. Bernoulli's Hypothesis

    Hypothesis proposed by mathematician Daniel Bernoulli that expands ...
  5. Intertemporal Choice

    An economic term describing how an individual's current decisions ...
  6. Efficiency Principle

    An economic theory that states that the greatest benefit to society ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Related Articles
  1. Fundamental Analysis

    How Influential Economists Changed Our History

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

    Adam Smith And "The Wealth Of Nations"

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

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  4. 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.
  5. Economics

    The History Of Economic Thought

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

    A Practical Look At Microeconomics

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

    The Difference Between Finance And Economics

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

    Free Market Maven: Milton Friedman

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

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  10. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center