The Basics
- Simple definition: The additional satisfaction gained from consuming one more unit of a good or service.
- Core idea: How much extra happiness does that next unit bring?
- Think of it as: The pleasure of one more bite.
What It Actually Means
Marginal utility declines as consumption increases – the law of diminishing marginal utility. The first samosa is delicious; the fifth, not so much. Consumers allocate spending to maximize total utility, equating marginal utility per rupee across all goods. If the marginal utility of good A is higher than that of good B per rupee, they buy more A until equality. Marginal utility explains the paradox of value – water (high total utility, low marginal utility) is cheap; diamonds (low total utility, high marginal utility) are expensive.
Example
A Pakistani consumer deciding between tea and biscuits compares marginal utility per rupee. If tea gives more satisfaction per rupee, they buy tea until marginal utilities equalize.
Why It Matters
Marginal utility is the key to understanding consumer choice, demand curves (downward-sloping because marginal utility declines), and value.
See also
Utility • Diminishing Marginal Utility • Consumer Equilibrium • Marginal Analysis • Paradox of Value
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