Marginal Utility

Marginal utility is the additional satisfaction a person gains from consuming one more unit of a good. It helps explain how consumers allocate spending as the value of successive units changes.

Diminishing Marginal Utility: The tendency for each additional unit of a good consumed to provide less additional utility than the previous unit. It explains why consumers usually value successive units less and spread spending across goods.
Utility: A measure of the satisfaction or preference-ranking associated with outcomes in economics. Marginal utility describes the change in this broader measure after consumption changes.
Consumer Choice Theory: The economic analysis of how consumers choose among goods under preferences and budget constraints. Marginal utility supplies a central account of how preferences guide consumption choices.
Marginalism: An approach to economic analysis that explains decisions through changes at the margin. Marginal utility is one application of this broader way of analyzing incremental choices.
Marginal Rate of Substitution: The rate at which a consumer is willing to exchange one good for another while maintaining the same utility. It translates relative marginal utilities into a consumer’s willingness to trade between goods.
Total Utility: The overall utility associated with consuming a given quantity of a good or bundle of goods. Marginal utility is the change in total utility caused by one more unit.
Income Effect: The change in quantity demanded caused by a price change altering a consumer’s real purchasing power. A price change changes the feasible consumption bundle and therefore the marginal value of goods.
Labor Theory of Value: A family of theories explaining the value of goods by the labor required to produce them. It contrasts subjective consumer valuation with explanations grounded in production costs.
Equimarginal Principle: A rule that utility is maximized when spending is allocated so marginal utility per unit of cost is equal across goods. It shows how consumers distribute a limited budget among goods with different marginal utilities.
Ordinal Utility: A representation of preferences that ranks alternatives without measuring the strength of preference numerically. Modern consumer theory can analyze marginal trade-offs without treating satisfaction as objectively measurable.

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