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Marginal utility is a common economics term. It refers to the additional benefit or satisfaction gained from consuming one more unit of a good or service.

In economics, utility does not distinguish between types of benefit or satisfaction. Something has utility if it satisfies any consumer want or need, whether for usefulness or pleasure. It is a subjective term.

For example, consider the marginal utility of a new pair of shoes. For someone who owns only one pair of worn-out shoes, the marginal utility is very high. For someone who has many pairs of shoes already, the marginal utility of another pair of shoes might be very low.

Economic theory states that people buy when marginal utility is greater than marginal cost, and they don’t buy when marginal utility is less than marginal cost. Therefore, they buy goods up to the point where marginal utility equals marginal cost. This is called the marginal decision rule.

Consider two people who both want a certain new car. One of the people likes the price of the car, and buys it. For him, the marginal utility was greater than the marginal cost. The other person finds it too expensive for his budget and doesn’t buy it. For him, the marginal cost is greater than his marginal utility.

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