Depending on the context, marginal utility and marginal value can describe the same thing. The key word for each is "marginal," that is, the incremental change based on the per-unit shift in a good or service. This may sound complicated, but it really is not. Once you understand the meaning behind the related economic concepts, it is easy to see what differences, if any, exist between the two terms.

Understanding Marginalism

One of the most important revolutions in economic thinking took place in the 1870s, when economists discovered human beings make decisions "on the margin."

For example, how much a consumer is willing to pay for a bottle of water right now depends entirely on his own subjective valuations and needs of the moment. It has nothing to do with the labor costs of producing a bottle of water, but rather how much he temporarily values one additional bottle.

This helps explain why one additional unit of water is rarely as valuable as one additional diamond or an iPhone, even though water helps sustain life in a very meaningful way while the others are unnecessary consumer goods. Water is very abundant and easy to obtain compared to iPhones and diamonds. So when a business owner or individual makes an economic decision, he does so marginally based on how valuable one extra unit is at a specific point and time.

Understanding Utility and Value

Utility is the economic term for satisfaction. A basic economic insight is human beings act purposefully to satisfy wants or to remove discomfort. The more utility an item has, the more value human beings are willing to assign to it. In this way, utility can be synonymous with subjective human value. However, utility is not the same thing as market value, which is expressed in dollars, because utility is personal and market value is aggregated and impersonal.

For example, if a toy company increases its marginal value by boosting its economies of scale, this has nothing to do with an individual's marginal utility. Here, marginal value just means an incremental increase in market value.

(For related reading, see "What Does Marginal Utility Tell Us About Consumer Choice?")

  1. How does marginal utility and marginal benefit differ?

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  2. What does marginal utility tell us about consumer choice?

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  3. What is 'marginalism' in microeconomics, and why is it important?

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  4. How can marginal utility explain the 'diamond/water paradox'?

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  5. What is the marginal utility of income?

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  6. What is the concept of utility in microeconomics?

    Read about the concept of utility in microeconomics, and learn why economists disagree about its usefulness in the analysis ... Read Answer >>
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