marginal utility (redirected from Marginal utility theory)

marginal utility

In economics, the additional satisfaction or benefit (utility) that a consumer derives from buying an additional unit of a commodity or service. The law of diminishing utility implies that utility or benefit is inversely related to the number of units already owned. For example, the marginal utility of one slice of bread offered to a family that has five slices will be great, since the family will be less hungry and the difference between five and six is proportionally significant. An extra slice offered to a family that has 30 slices will have less marginal utility, since the difference between 30 and 31 is proportionally smaller and the family's appetite may be satisfied by what it already has. The concept grew out of attempts by 19th-century economists to explain the fundamental economic reality of price.