Marginal utility

What is marginal utility?

Marginal utility It is the value that a person gives to a good, for each product added to it.

It is called marginal because the greater the number of units, the lower the utility granted to them. Also, the fewer units available, the greater the utility granted by the consumer.

This concept cooperate with the pricing of products, since when a product is abundant, it generally has low prices; but if a product is scarce, its cost will be high.

Marginal utility example

To better understand this concept, we propose below an example:

A person is very thirsty, and when acquiring a bottle of water gets a marginal utility of 30. Then, you decide to buy another bottle of water, which you reports a profit of 20. Finally, the person acquires a third bottle, with which he obtains a utility of 10.

When you buy a fourth bottle, it is of no use to you, since your thirst is quenched and you have reached the point of satisfaction. In fact, by ingesting more bottles, marginal utility will start to become negative or decreasing.

Marginal utility graph.

Types of marginal utility

The marginal utility can be increasing, decreasing or neutral.

Increasing or positive

It occurs when the consumption of an additional unit of a product increases its marginal utility value. In other words, as a consumer purchases the product, the greater their interest in it and their satisfaction.

Decreasing or negative

Contrary to the positive, decreasing utility occurs when with the additional consumption of each unit its degree of marginal utility decreases.

Neutral

It occurs when the consumption of additional units does not influence the marginal utility value of the product, but it remains constant.

Difference between marginal utility and total utility

Marginal utility is the value granted by the product, in relation to several units, which establishes the decrease or increase in the utility of each unit, from the first to the last consumed.

This utility is reduced as the number of units of a product increases.

Conversely, the total profit It is the benefit provided by the total amount consumed of a product. Is it will increase as the number of units of a product increases.