Marginal Analysis and Consumer Choice

Marginal Utility & Total Utility

• 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

• when utility enters negative, a person is not satisfied, so they wouldnt chose to consumer another unit of good/service

• once MU equates to 0, a consumer will stop wanting to buy goods

• law of diminishing marginal utility - as consumption of a good or service increases, the additional satisfaction (utility) derived from each additional unit consumed decreases

• consumers face constraints and must make optimal decisions based on those constraints

• MU/P - measure of the additional satisfaction or benefit a consumer receives from spending an extra dollar on a particular good or service

• MU/P helps consumers determine if they're getting the most value for their money when making purchasing decisions (utility maximization)