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 - 9

Economists also use the concept of ''utility'' to explain the law of demand. The utility of a good or service is its ability to satisfy your want for it. Utility can change. On a hot day, an icecream has more utility than an icecream on a cold day.

''Marginal utility'' is the additional satisfaction one gets from consuming an additional unit of a commodity.

Because we have unlimited wants and limited incomes, we buy a wide range of goods and services, and we often buy more than one of an item in a given period of time. All of us budget, whether we think about it consciously or not. You may go to your local shop three or four times a week, and buy soft drinks, and snack food. If you want to go to the movies on the weekend, you will reduce your spending at the corner store during the week. You have changed your preferences. You have changed the valuation of the opportunity cost of an extra can of soft drink.

At the ''margin'', that is, at the ''edge'', you have decreased the utility of the, say, third can of soft drink, and substituted the greater satisfaction of going to the movies.

The marginal utility of any item depends on how much of it you already have. If you are thirsty, the first can of soft drink is the most satisfying. The second can may be enjoyable, but if you keep drinking, the fifth will probably make you feel sick! Each can of soft drink costs the same amount of money. After each drink, you will consciously or unconsciously make a judgement on whether to buy another drink, or to buy something else with the money, or maybe save the money for later. The marginal utility of each can of soft drink is reducing, as your want is being satisfied.