Archive for September 12th, 2014

September 12, 2014

Marginal Utility

diminishing returns by ed stein

paradox of value

In economics, ‘utility’ is the amount of satisfaction received from consuming (using) goods and services, and ‘marginal’ refers to a small change, starting from some baseline level. Marginal utility describes the change in utility from consuming more or less of a product. Economists sometimes speak of a law of ‘diminishing marginal utility,’ meaning that consuming the first unit usually has a higher utility than every other unit. When the number of units that are consumed increases, their marginal utility decreases (and vice versa).

As 20th century English economist Philip Wicksteed explained the term, ‘Marginal considerations are considerations which concern a slight increase or diminution of the stock of anything which we possess or are considering.’ ‘Marginal cost’ is the cost of producing one more unit of a good. The ‘marginal decision rule’ states that a good or service should be consumed at a quantity at which the marginal utility is equal to the marginal cost (i.e. at a cost that justifies the satisfaction derived from the product).

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