Marginal utility can be a very difficult piece of economics to understand, simply because there is no physical, quantitative measurement for it. However, once marginal utility is broken down and explained, it is no different than any other marginal measurement, such as marginal cost or marginal revenue.
What Is Marginal Utility
According to R. Glenn Hubbard and Anthony Patrick O'Brien in their textbook Economics, marginal utility is essentially how much happier or more satisfied a person is after consuming one unity good or service. For example, marginal utility can be how much fuller one is after eating one piece of food, or how much happier one is after watching one episode of a favorite television show.
Because it is a marginal measurement, marginal utility is calculated by finding the difference in utility between units. Each additional unit of a good adds less satisfaction than the previous unit, until the point is reached where marginal utility actually becomes negative. This is the point where total utility starts decreasing, because too much of the good or service has been consumed.
How To Measure Marginal Utility
Marginal utility is not a set amount; each additional unit of a good or service adds less satisfaction than the previous unit.
Consumption of food is a good example of how marginal utility works. For example, assume Person A has not eaten all day, and sits down before a large pizza with his favorite toppings. Because Person A is very hungry, the first slice of pizza gives him a lot of satisfaction. The second slice that Person A eats is still good, but does not carry as much satisfaction as the first slice did. Each additional slice of pizza makes Person A slightly happier, but adds less happiness per slice than the last. The marginal utility is the difference in satisfaction between each slice and the last.
Eventually, Person A will reach a point where he is very full, and the next slice of pizza he consumes actually takes away from his satisfaction, because he starts to feel ill. This is the point where marginal utility becomes negative, because that particular slice of pizza makes him less happy than he was before he ate it. If Person A continues to consume more slices after beginning to feel ill, each additional slice will make him feel more ill than the previous slice did.
How To Calculate Marginal Utility
In economics, utility is assigned numerical values. Marginal utility is calculated by subtracting total utility prior to consuming a unit of a good or service from total utility after consumption. In the example above, Person A would have had a total utility of 0 prior to consuming any pizza. Assuming the first slice raised his total utility to 10, slice one would have had a marginal utility of 10, because 10 minus 0 is 10. Assuming the second slice raised his total utility to 17, slice two would have had a marginal utility of 7, because 17 minus 10 is 7.
Kaitlyn Yeager - Kaitlyn Yeager is a recent college graduate with a Bachelor of Arts degree in print journalism and a minor in economics. She was the web ...
