Published Oct 25, 2023 Marginal utility is a concept in economics that measures the satisfaction or benefit an individual derives from consuming an additional unit of a good or service. It is the additional utility gained from consuming one more unit of a good, and it typically decreases as the quantity consumed increases. Marginal utility is important in understanding consumer behavior and decision-making. Let’s consider the example of a person eating a slice of pizza. The first slice of pizza consumed provides a high level of satisfaction since the person is hungry and the pizza is delicious. The second slice also brings satisfaction, but to a lesser extent than the first slice. As the person continues to eat more slices, the level of satisfaction or marginal utility decreases. After a certain point, the person may start to feel full or even experience discomfort from overeating, leading to a negative marginal utility. This example illustrates the concept of diminishing marginal utility, which means that as more of a good is consumed, the additional satisfaction gained from each unit decreases. Understanding marginal utility is essential in economics as it helps explain consumer behavior and decision-making. The concept of diminishing marginal utility influences how individuals allocate their limited resources when making choices. For example, if a person has limited money to spend on different goods, they will typically allocate their spending to maximize their overall satisfaction or utility by considering the marginal utility of each additional unit of a good or service. By understanding marginal utility, businesses can also make informed decisions regarding pricing and production. They can consider how changes in quantity and pricing may affect the marginal utility and overall satisfaction of consumers. This knowledge can help businesses optimize their offerings to meet consumer preferences and maximize profitability.Definition of Marginal Utility
Example
Why Marginal Utility Matters
Economics