Understanding the Concept of Marginal Utility
Marginal utility is a concept in economics that looks at how much satisfaction a person gets from consuming a product or service. It measures the amount of satisfaction that a person gets from consuming each additional unit of a good or service. This concept is used to help explain why people make certain decisions about what and how much to buy. When examining marginal utility, it can be understood that the more a person consumes of a good or service, the less satisfaction they will get from it. This is known as the law of diminishing marginal utility. As a person consumes more and more of a good or service, the satisfaction they get from it will eventually diminish. For example, let’s say a person buys 10 candy bars. The first candy bar will provide the most satisfaction, while the tenth candy bar will provide the least amount of satisfaction. This is because the person has already consumed nine candy bars and is less likely to get the same amount of satisfaction from the tenth one. Marginal utility can be used to explain why people make certain decisions when it comes to buying goods and services. For example, when a person is deciding whether to buy a new car or not, they might be more likely to buy the car if the additional utility they get from owning the car is greater than the cost of the car. In this case, the marginal utility of the car is greater than the cost of the car, so the person is likely to make the purchase. Marginal utility can also be used to explain why people are willing to pay different prices for the same good or service. For example, a person might be willing to pay a higher price for a luxury car than for a basic car. This is because the additional utility they get from owning a luxury car is likely to be greater than the additional utility they get from owning a basic car, so they are willing to pay more for it. Marginal utility is an important concept in economics that helps us to understand why people make certain decisions when it comes to buying goods and services. Understanding this concept can help us to make better decisions and to understand why people are willing to pay different prices for the same good or service.Sources: