Index
The Demand Curve 1
The Demand Curve 2
The Demand Curve 3
The Laws of Supply and Demand - 4
The Laws of Supply and Demand - 5
A ''Contraction'' of Demand - 6
''Ceteris Paribus'' - 7
An ''Expansion'' of Demand - 8
Marginal Utility - 9
Marginal Utility - 10
Marginal Utility - 11
Marginal Utility - 12
Consumer Surplus - 13
Consumer Surplus - 14
Price Discrimination - 15
An ''Expansion'' of Supply - 16
An ''Expansion'' of Supply - 17
Market Equilibrium - 18
Market Equilibrium - 19
Market Equilibrium - 20
Movements of the Demand Curve - 21
Movements of the Demand Curve - 22
Movements of the Demand Curve - 23
Inferior Goods - 24
Movements of the Demand Curve - 25
Movements of the Supply Curve - 26
Movements of the Supply Curve - 27
Movements of the Supply Curve - 28
The Income Effect - 29
The Substitution Effect - 30
The Substitution Effect - 31
The Substitution Effect - 32
The Substitution Effect - 33
Complements - 34
Complements - 35
Review: Factors Effecting Demand - 36
Review: Factors Effecting Demand - 37
The Goals of Firms - 38
The Goals of Firms - 39
To: Elasticity

Marginal Utility - 12

Economists assume that everyone is trying to maximize their total utility. However, the satisfaction one gains from consumption is in part limited by our income, and by the prices of the goods and services we wish to buy.

The marginal utility we gain from the last soft drink we buy is not equal to the marginal utility we gain from the purchase of our last pair of jeans. Jeans cost more than soft drinks. It seems reasonable to assume that consumers will buy additional units of good A, which cost twice as much as good B, as long as each additional unit of A delivers twice as much satifaction as B. This is a simple application of proportionality.

It follows that a person cannot increase their total satisfaction, with a given income, if he or she buys goods that give a marginal utility exactly proportional to their prices.

We can summarise this fact mathematically. MU1 stands for the marginal utility of good 1, MU2 stands for the marginal utility of good 2, and MUn stands for the marginal utility of good ''n''. P1 stands for the price of good 1 and so on. All of these are equal.