In economics, the marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good or service. Economists sometimes speak of a law of diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility than the second and subsequent units. The marginal decision rule states that a good or service should be consumed at a quantity at which the marginal utility is equal to the marginal cost.
The concept of marginal utility played a crucial role in the marginal revolution of the late 19th century, and led to the replacement of the labor theory of value by neoclassical value theory in which the relative prices of goods and services are simultaneously determined by marginal rates of substitution in consumption and marginal rates of transformation in production, which are equal in economic equilibrium.
Read more about Marginal Utility: Marginality, Utility, Diminishing Marginal Utility, Marginalist Theory, Quantified Marginal Utility, History
Famous quotes containing the words marginal and/or utility:
“Of course I’m a black writer.... I’m not just a black writer, but categories like black writer, woman writer and Latin American writer aren’t marginal anymore. We have to acknowledge that the thing we call “literature” is more pluralistic now, just as society ought to be. The melting pot never worked. We ought to be able to accept on equal terms everybody from the Hassidim to Walter Lippmann, from the Rastafarians to Ralph Bunche.”
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—Friedrich Nietzsche (1844–1900)