Marginal utility is the concept according to which the customer can be provided with the sense of satisfaction when any gain is received by the consumer while he or she is getting any goods or service by one more unit.
Evaluation by marginal utility
The concept of marginal utility is very important because it is used by the economists effectively to evaluate and determine the rate of selling of a specific product by the consumer. According to this evaluation report, the positive marginal utility is defined as the condition when the consumption of an item increases and surpasses the utility of goods in total. On the other hand the concept of negative utility explains the situation when any additional item’s consumption decreases than the total utility of the goods.
Illustration of marginal utility
Basically marginal utility is concerned about the satisfaction of getting or achieving anything. This can be explained by a simple illustration. If one gets satisfied by drinking one glass of water, it can probably be decreased by drinking another glass of water. Furthermore it will be decreased by third glass of water. From this we can conclude that the more a commodity is consumed, the more it will satisfy the consumer. The concept of marginal utility is based upon this illustration and further theories are then evolved from this basic concept.
Law of diminishing marginal utility
Basically marginal utility is all about the consideration of gain obtained by the consumer in increasing the usage of that special good or loss suffered by decreasing the loss of a good. That is why often the law of diminishing marginal utility is often considered while discussion the marginal utility. This means that when first unit of the consumption of any specific good or service is recorded, the utility of second and other subsequent units is increased further.The rule of marginal utility states that the unit at which the marginal utility of any good or service is recorded, it is called as the marginal cost for that specific good or service. This concept has played a crucial role in the marginal revolution. This has further led to the formulation of labor theory.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Debt Service Coverage Ratio
- Accounts Payable Turnover Ratio
Have 10 minutes to relax?Play our unique
Play The Game