Marginal utility
In economics, marginal utility describes the change in utility (pleasure or satisfaction resulting from the consumption) of one unit of a good or service.[1] Marginal utility can be positive, negative, or zero. Negative marginal utility implies that every additional unit consumed of a commodity causes more harm than good, leading to a decrease in overall utility. In contrast, positive marginal utility indicates that every additional unit consumed increases overall utility.[2]
In the context of cardinal utility, economists postulate a law of diminishing marginal utility. This law states that the first units of consumption of a good or service yields more satisfaction or utility than the subsequent units, and there is a continuing reduction in satisfaction or utility for greater amounts. As consumption increases, the additional satisfaction or utility gained from each additional unit consumed falls, a concept known as diminishing marginal utility. This idea is used by economics to determine the optimal quantity of a good or service that a consumer is willing to purchase.[3]
Utility[edit]
Utility is an economic concept that refers to the level of satisfaction or benefit that individuals derive from consuming a particular good or service, which is quantified using units known as utils (derived from the Spanish word for useful). However, determining the exact level of utility that a consumer experiences can be a challenging and abstract task. To overcome this challenge, economists rely on the consent of revealed preferences, where they observe the choices made by consumers and use this information to rank consumption options from the least preferred to the most desirable.
Initially, the term utility equated usefulness with the production of pleasure and avoidance of pain by moral philosophers, Jeremy Bentham and John Stuart Mill.[5] In line with this philosophy, the concept of utility was defined as "the feelings of pleasure and pain"[6] and further as a "quantity of feeling".[7]
Contemporary mainstream economic theory frequently defers metaphysical questions, and merely notes or assumes that preference structures conforming to certain rules can be usefully proxied by associating goods, services, or their uses with quantities, and defines "utility" as such a quantification.[8]
In any standard framework, the same object may have different marginal utilities for different people, reflecting different preferences or individual circumstances.[9]
