What is marginal utility?

Marginal utility refers to the additional satisfaction or benefit that a consumer gets from consuming one more unit of a good or service. This concept is pivotal in economics as it helps to explain consumer behavior and decision-making. When a consumer decides to purchase or consume more of a product, they weigh the additional satisfaction they expect to derive from that extra unit against the cost of acquiring it.

By focusing on the added satisfaction from consuming one additional unit, marginal utility captures the incremental change in utility that occurs with every unit consumed. This idea highlights how consumers make choices based on not just total utility but on how much more satisfaction they would gain from each additional unit, which can lead to different consumption patterns as preferences and needs evolve.

In contrast, the overall satisfaction from consuming a good refers to total utility rather than marginal utility. The concept of decreased satisfaction with additional consumption relates to the principle of diminishing marginal utility, which states that as one consumes more units of a good, the additional satisfaction gained from each additional unit tends to decrease. The average satisfaction gained from all units consumed does not focus on the incremental benefit of a single unit, which makes the concept more relevant to aggregate consumption rather than individual choices. Understanding marginal utility is essential for analyzing consumer behavior and market demand.