Marginal Utility
Marginal utility refers to the additional satisfaction or happiness a consumer gains from consuming one more unit of a good or service. This concept is fundamental in economics and is used to explain consumer behavior and the shape of demand curves. Typically, as the quantity consumed increases, the marginal utility decreases, a phenomenon known as the law of diminishing marginal utility. Marginal utility plays a crucial role in decision-making processes, helping consumers and businesses make optimal choices given limited resources.
Definition: Marginal utility refers to the additional satisfaction or happiness a consumer gains from consuming one more unit of a good or service. This concept is used to explain consumer behavior and the shape of the demand curve. Generally, as consumption increases, marginal utility decreases, a phenomenon known as the law of diminishing marginal utility. Marginal utility plays a crucial role in decision-making as it helps consumers and businesses make optimal choices under limited resources.
Origin: The concept of marginal utility was first introduced by 19th-century economists such as William Stanley Jevons, Carl Menger, and Léon Walras. These economists studied consumer behavior and discovered the law of diminishing marginal utility, applying it to explain market prices and the formation of demand curves.
Categories and Characteristics: Marginal utility can be divided into positive marginal utility and negative marginal utility. Positive marginal utility refers to the additional satisfaction gained from consuming one more unit of a good or service, while negative marginal utility refers to the dissatisfaction or negative impact from consuming one more unit. Characteristics of marginal utility include: 1. Diminishing Marginal Utility: As consumption increases, the additional satisfaction from consuming each extra unit decreases. 2. Individual Differences: Different consumers may experience different marginal utilities for the same good or service, depending on personal preferences and needs.
Specific Cases: Case 1: Suppose a person is very thirsty. Drinking the first glass of water provides great satisfaction (high marginal utility), but as they drink more, the additional satisfaction from each subsequent glass decreases, and by the tenth glass, they might feel discomfort (negative marginal utility). Case 2: When shopping, a consumer might feel very satisfied with the first discounted item they buy, but as they purchase more discounted items, the additional satisfaction from each item gradually decreases.
Common Questions: 1. Why does marginal utility diminish? Marginal utility diminishes because as consumption increases, the consumer's need and interest in each additional unit of the good or service decrease. 2. How does marginal utility affect consumer decisions? Consumers use marginal utility to decide how much of a good or service to purchase to maximize their total utility.
