Marginal Utility

Marginal Utility

Marginal utility measures the additional satisfaction a person gets from consuming one more unit of a commodity. Imagine Nicole is very hungry, and she orders a pizza. She eats the first slice, which gives her immense satisfaction. This satisfaction is her utility from consuming the first slice. She eats another slice of pizza. The additional satisfaction she gets from eating this second slice is its marginal utility.

Law of Diminishing Marginal

The law of diminishing marginal utility states that after a sufficient quantity of a commodity is consumed, the utility derived from each successive unit decreases, all other things being equal.

For example, the first slice of pizza gave Nicole a very high level of satisfaction. But as she continues eating more slices, she will gradually reach a stage where she gets zero utility. Eventually, she reaches a stage where she gets negative utility and does not want to eat more pizza.