Posted in Finance, Accounting and Economics Terms, Total Reads: 1147
Definition: Marginal Utility
When a consumer starts consuming any product, the satisfaction starts increasing and the requirement of consuming more starts decreasing. Hence the concept of marginal utility says that the consumption of an additional unit of product is inversely related to the number of units he already has.
For example, if a person is really thirsty then the requirement of glasses of water to satisfy the thirst will be less after consuming one glass and hence we can say that the marginal utility decreases as soon as he starts consuming glasses of water.
U = UNITS
Q = QUANTITY
Graph showing the total and marginal utility, it shows how the marginal utility decreases after a certain level, this is also known as law of diminishing returns.