Utility (economic)

(Redirected from Marginal utility)

Utility essentially refers to the welfare of an individual, it is a measure of the level "happiness" or "satisfaction" with a certain good or bundle of goods. The concept of utility is based on the assumption that a rational person will seek to maximize their utility or happiness.[1] Utility measures how satisfied one is, it is comprised of an endless number of factors and some which cannot necessarily be quantified such as a level of enjoyment from an activity. Utility essentially measures ones preferences and how they satisfied they are with the current set of preferences or the current bundle.

The concept of utility can be compared to how useful something is, a family of 6 might choose to purchase a minivan as opposed to a car as it is more "useful" to them because of the large space within the vehicle. When comparing one minivan to another there are more subtle reasons why the family might find one model more useful than the other, maybe it is heated seats or a certain type of stereo.

The concept of utility is used to simplify the assumptions made about consumers, because everybody has different preferences it is impossible to measure how useful a good is to each individual. Determining how much utility a good or service yields to a person helps to determine how the demand is affected in a market, essentially, why a person wants a good or service.

Marginal Utility

This refers to the additional unit of utility brought by the consumption of an additional unit of a good or service.[2] This is particularly important when examining the behavior and preferences of a consumer, for example, the more a good is consumed, the less utility it yields. This effect is known as diminishing marginal utility.

For example, if a single person buys a car then they are able to get around the city quickly and efficiently, saving them time. If that same person buys a second car of a similar model, it has less utility or usefulness to that person because they can only drive one car at a time and can't use it for a different purpose.

Also See


  1. J.Black, N. Hashimzade, and G. Myles. (2009) "Utility." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3278?rskey=VrzlGL&result=1, 2009 [May 22, 2016]
  2. A. Goolsbee, S. Levitt and C. Syverson. Microeconomics. New York: Worth Publishers, 2013,pp. 114.