Marginal utility

🌱September 20, 2021.
Last tended January 15, 2022.
seedling 🌱
1 minute read ⏱

In microeconomics, the benefit gained from an additional unit (such as a dollar, good, or service) is called marginal utility.

When the incremental value of “one more” unit decreases it is called diminishing marginal utility.

For example, a pay increase of $1/hr has high marginal utility for someone earning $10/hr, but a diminishing marginal utility as earnings go up. Someone making $10000/hr doesn’t get much out of another $1/hr.

The marginal utility of a good can actually decrease so much that it becomes negative. Anyone who has been to an all-you-can-eat restaurant can understand this! If enough of a good is consumed at a negative marginal utility, it can cause the total utility to become negative too. Once full, continuing to eat can make you sick - which is worse than eating nothing more!