Marginal utility

In economics, utility is the satisfaction or benefit derived by consuming a product; thus the marginal utility of a good or service describes how much pleasure or satisfaction is gained from an increase in consumption. It may be positive, negative, or zero. For example, purchasing more than one needs brings little satisfaction as the purchaser feels it is wasted money, hence zero marginal utility. If one is actually harmed by extra consumption then it is negative, and if some satisfaction is gained by extra consumption then it is positive. [1] In other words, a negative marginal utility suggests that each additional unit of a good consumed provides more harm than benefits and leads to a lower level of overall utility, whereas a positive marginal utility suggests each additional unit consumed provides more benefit and leads to a higher level of overall utility.

In the context of cardinal utility, economists postulate a law of diminishing marginal utility, which describes how the first unit of consumption of a particular good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. Therefore, the fall in marginal utility as consumption increases is known as diminishing marginal utility. This concept is used by economists to determine how much of a good a consumer is willing to purchase.


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