Marginal Analysis and Consumer Choice

Marginal Utility

The satisfaction gained from consuming one additional unit of a good or service.

Total Utility

Total satisfaction from all units consumed.

Maximum Total Utility

The highest point before marginal utility starts to drop too low or goes negative.

Negative Utility

When utility enters negative, a person is not satisfied, so they wouldn't choose to consume another unit of a good/service.

When does a consumer stop wanting to buy goods?

Once marginal utility (MU) equates to 0.

Law of Diminishing Marginal Utility

As consumption of a good or service increases, the additional satisfaction derived from each additional unit consumed decreases.

MU/P

A measure of the additional satisfaction or benefit a consumer receives from spending an extra dollar on a particular good or service.

Utility Maximization

The process where MU/P helps consumers determine if they're getting the most value for their money when making purchasing decisions.