5.2: Marginal Utility

Marginal Utility

Marginal utility measures the additional satisfaction a person gets from consuming one more unit of a commodity. Imagine Nicole is very hungry, and she orders a pizza. She eats the first slice, which gives her immense satisfaction. This satisfaction is her utility from consuming the first slice. She eats another slice of pizza. The additional satisfaction she gets from eating this second slice is its marginal utility.

Law of Diminishing Marginal

The law of diminishing marginal utility states that after a sufficient quantity of a commodity is consumed, the utility derived from each successive unit decreases, all other things being equal.

For example, the first slice of pizza gave Nicole a very high level of satisfaction. But as she continues eating more slices, she will gradually reach a stage where she gets zero utility. Eventually, she reaches a stage where she gets negative utility and does not want to eat more pizza.

Consider a girl riding her motorcycle under the hot sun, feeling thirsty.

Spotting a gas station, she buys a bottle of water. This first bottle of water gives her immense satisfaction or utility.

Still thirsty, she gets another bottle of water.

However, the utility of this is less than the first.

If she drinks more bottles of water, she could experience negative utility.

Marginal utility measures a person's additional satisfaction from consuming one more unit of a commodity.

The law of diminishing marginal utility states that after a sufficient quantity of a commodity is consumed, the utility derived from each successive unit decreases, all other things being equal.

The division of water consumed in the number of bottles is an example. In reality, goods could be divided into hundreds or thousands of units. No matter how tiny the increments, each additional unit of good provides less satisfaction, resulting in a continuous diminishing curve on the graph.

• Marginal Utility - Measurement of satisfaction gained from consuming additional units of a commodity.
• Law of Diminishing Marginal Utility - Principle indicating decreased satisfaction provided by each successive unit consumed.
• Total Utility vs Marginal Utility - The relationship between overall satisfaction and incremental satisfaction.
• Marginal Utility Curve - Graphical representation of change in satisfaction against increased consumption.
• Negative Marginal Utility - Scenario where consumption of further units leads to a decrease in overall satisfaction.

• Define Marginal Utility – Understand the how and why it's obtained (e.g., measure of satisfaction)
• Contrast Total Utility vs Marginal Utility – Know how these two concepts are interrelated (e.g., satisfaction analysis)
• Explore Examples – Explain what happens when Nicole eats more pizza (e.g., diminishing satisfaction)
• Explain the Law of Diminishing Marginal Utility – Understand why satisfaction decreases with increased consumption
• Apply in Context - Understand how the concept helps in Consumer Behaviour Analysis.

• What is the difference between total utility and marginal utility?
• Why does marginal utility decrease with the consumption of more units?
• How does law of diminishing marginal utility affect consumer behaviour?

• Students – Can discover the correlation between consumption and satisfaction.
• Educators – Can illustrate the fundamentals of microeconomics regarding satisfaction.
• Researchers – Can examine consumer behaviour with regards to satisfaction.
• Economics Enthusiasts – Can understand key concepts of microeconomics and it's theories.