What does marginal utility mean for a consumer?

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justaguide | College Teacher | (Level 2) Distinguished Educator

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The term used in the context of consumers is marginal utility. Utility is defined as the relative satisfaction that a person receives by consuming a good or a service.

Marginal utility is the increase in utility provided by the consumption of one more unit of the product or service. Marginal utility decreases with each extra unit consumed. As an illustration, let us assume you like ice cream and visit an ice cream outlet. You feel very happy when you eat the first ice cream that you buy. After you have eaten the first ice cream you may want to eat another and buying it would make you feel a little more happy. You may not mind buying and eating a third ice cream. But as you buy more ice creams the happiness you receive when you eat them decreases and soon you will reach a stage where you wouldn't want to eat any more, even if they were being given for free.

A similar analogy applies for all products and services that we consume. The marginal utility curve is diminishing and the curve of marginal utility versus the number of products is a downward sloping one. This follows from the fact that the extra satisfaction that the consumer gets from an extra unit consumed decreases as the total number of units consumed increases.


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