What is Marginal Utility?

Malcolm Tatum

Marginal utility is an economic term that is used to describe the additional amount of satisfaction that is achieved from utilizing more than a single unit of a good or service. The idea is that as more units are consumed, the user does realize some additional type of satisfaction or utility from each subsequent use. In some situations, that degree of utility will be less than enjoyed previously, while at other times the good or service is utilized in a completely different way, leading to incurring satisfaction in a different way from that same product.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

A classic example of how marginal utility works involves considering the consumption of a glass of water. Assuming the consumer is thirsty, there is normally a great deal of satisfaction obtained by drinking the water contained in the glass. Should the consumer choose to drink a second glass of water immediately afterward, he or she is still likely to obtain some satisfaction from the consumption, but probably not as much as with the first glass. The satisfaction obtained from that second glass of water is additional or marginal utility.

There is a second approach to marginal utility that does not involve consuming the product in the same manner each time. For instance, a consumer may purchase a bed sheet and find that it is an ideal fit for a bed, and is very soft to the touch. After enjoying the sheet for a time, the consumer may notice the color and texture of the sheet would be ideal for use in creating a window treatment. This prompts the consumer to purchase a second sheet identical to the first, and use the fabric to fashion a drape, curtain or even cover a cornice board for use as a window treatment. In this instance, the marginal utility obtained from the same type of product may be equal to the first round of consumption rather than slightly less.

Inherent in the concept of marginal utility is the subjective judgment of the consumer. Whether a second round of usage is equally satisfying, not as satisfying, or actually more satisfying than the first round of consumption depends on how the consumer perceives the product, and his or her mindset at the time of both periods of consumption. For this reason, there can be varying degrees of marginal utility associated with the consumption of any good or service. This reality often prompts suppliers of various products to constantly look for new ways to market their product lines as a means of inspiring consumers to try new ways of using their products and hopefully increasing that marginal utility in some manner.

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