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. Bernoulli's Hypothesis

    Hypothesis proposed by mathematician Daniel Bernoulli that expands ...
  4. Tax Wedge

    1. The difference between before-tax and after-tax wages. The ...
  5. Expected Utility

    An economic term summarizing the utility that an entity or aggregate ...
  6. Utility

    1. An economic term referring to the total satisfaction received ...
Related Articles
  1. How Influential Economists Changed Our ...
    Fundamental Analysis

    How Influential Economists Changed Our ...

  2. Adam Smith And
    Entrepreneurship

    Adam Smith And "The Wealth Of Nations" ...

  3. Understanding Supply-Side Economics
    Economics

    Understanding Supply-Side Economics

  4. The Uncertainty Of Economics: Exploring ...
    Economics

    The Uncertainty Of Economics: Exploring ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center