Definition
Marginal Utility is the additional satisfaction or benefit (usefulness) that a consumer derives from consuming an additional unit of a good or service. It is a fundamental concept in microeconomics that helps explain consumer choice, demand, and the value placed on goods and services.
Examples
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Food Consumption: If someone is very hungry, the first slice of pizza provides a high level of satisfaction (high marginal utility), but as they continue to eat, each additional slice provides less and less satisfaction (diminishing marginal utility).
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Technology Products: The marginal utility of having a second smartphone might be significantly lower compared to the first smartphone because the primary needs are already met with the first device.
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Recreational Activities: The first hour of a movie might provide high satisfaction, whereas the fifth consecutive hour of watching movies might not add much to the viewer’s enjoyment.
Frequently Asked Questions (FAQs)
What affects marginal utility?
Marginal utility can be influenced by several factors such as the nature of the good or service, individual preferences, levels of prior consumption, and the context of the consumption experience.
What is diminishing marginal utility?
Diminishing marginal utility is the principle that as a consumer consumes more units of a good, the additional satisfaction gained from consuming each additional unit decreases. This concept is key to understanding consumer demand.
How is marginal utility calculated?
Marginal utility is calculated by the change in the total utility received from the consumption of one additional unit. The formula is: MU = ΔTU / ΔQ, where MU is marginal utility, ΔTU is change in total utility, and ΔQ is change in quantity.
Can marginal utility be negative?
Yes, marginal utility can be negative if consuming an additional unit of a good decreases overall satisfaction. This often happens with goods that can lead to satiation or harm if consumed excessively, like food or alcohol.
What is the relationship between marginal utility and price?
According to the law of demand, there is an inverse relationship between price and quantity demanded. When marginal utility decreases, the willingness to pay a high price for additional units also decreases.
- Total Utility: The overall satisfaction or benefit a consumer receives from consuming a given total quantity of a good or service.
- Law of Diminishing Marginal Utility: A principle stating that as a person consumes more of a good, the marginal utility from additional units decreases.
- Indifference Curve: A graph showing different bundles of goods between which a consumer is indifferent, i.e., has no preference.
- Budget Constraint: The limitation on the consumption bundles that a consumer can afford.
Online References
Suggested Books for Further Studies
- “Principles of Economics” by N. Gregory Mankiw
- “Microeconomics” by Robert S. Pindyck and Daniel L. Rubinfeld
- “Intermediate Microeconomics: A Modern Approach” by Hal R. Varian
Fundamentals of Marginal Utility: Economics Basics Quiz
### What is marginal utility?
- [ ] The total satisfaction received from consuming goods.
- [ ] The income available to a consumer.
- [x] The additional satisfaction from consuming one more unit of a good.
- [ ] The cost of producing one more unit of a good.
> **Explanation:** Marginal utility is the additional satisfaction obtained from consuming an additional unit of a good or service.
### What does diminishing marginal utility imply?
- [x] Additional units of a good provide less additional satisfaction.
- [ ] Satisfaction increases with every additional unit consumed.
- [ ] The price of a good decreases with additional consumption.
- [ ] The total utility always increases with every unit consumed.
> **Explanation:** Diminishing marginal utility means that each subsequent unit of a good provides less additional satisfaction than the previous one.
### If the marginal utility of the first sandwich is 20, and the second is 15, what is the total utility after consuming two sandwiches?
- [x] 35
- [ ] 20
- [ ] 5
- [ ] 15
> **Explanation:** Total utility is the sum of marginal utilities. Therefore, 20 (first sandwich) + 15 (second sandwich) = 35.
### Marginal utility turns negative when:
- [ ] Additional units increase cost.
- [x] Additional units decrease overall satisfaction.
- [ ] Total utility reaches a maximum.
- [ ] Price exceeds marginal cost.
> **Explanation:** When additional units consumed result in decreased overall satisfaction, marginal utility becomes negative.
### When the price of a good decreases, according to marginal utility theory, what is likely to occur to the quantity demanded?
- [ ] It decreases.
- [ ] It remains the same.
- [x] It increases.
- [ ] It becomes zero.
> **Explanation:** Lower prices typically result in increased quantity demanded, since the utility per cost unit is higher.
### If a consumer reaches a point where consuming an additional unit of a good provides no additional satisfaction, this point is known as:
- [x] Zero marginal utility
- [ ] Extreme satisfaction
- [ ] Maximum utility
- [ ] Minimum utility
> **Explanation:** When additional consumption yields no extra satisfaction, it is termed as zero marginal utility.
### The term that represents the limitation on consumption that a consumer can afford given their income and the prices of goods is known as:
- [ ] Marginal Utility
- [ ] Indifference Curve
- [x] Budget Constraint
- [ ] Total Utility
> **Explanation:** The financial limitation or budget constraint represents the boundary of goods and services a consumer can afford.
### An economic graph showing combinations of two goods between which a consumer is indifferent is called:
- [ ] Budget line
- [x] Indifference curve
- [ ] Marginal cost curve
- [ ] Supply curve
> **Explanation:** An indifference curve shows different combinations of two goods that provide the same level of utility to a consumer.
### According to the theory of marginal utility, which combination maximizes consumer satisfaction?
- [ ] Two units of any good
- [ ] Equal marginal utility from each good
- [x] The highest marginal utility per dollar spent
- [ ] Random allocation of income
> **Explanation:** Maximizing consumer satisfaction involves allocating resources to achieve the highest marginal utility per dollar spent.
### If a consumer continues to consume beyond the point of zero marginal utility, what happens to total utility?
- [x] It may decrease.
- [ ] It stays constant.
- [ ] It exponentially increases.
- [ ] It reaches a perfect maximum.
> **Explanation:** If consumption continues past zero marginal utility, total utility may decrease as the extra units start causing dissatisfaction.
Thank you for advancing your understanding of economics through this comprehensive exploration of marginal utility and the associated quiz. Continue striving for excellence in your economic acumen!
