What is marginal utility? Diminishing marginal utility with examples

 

What is marginal utility? Diminishing marginal utility with examples

Before going to the marginal utility we have to clear the concept of utility

Utility is the satisfaction which we derived after the consumption of particular commodity or services. So if we consume anything we derived some satisfaction from it.

 For example, if we take a cup of coffee during the cold winter days we obtained a level of satisfaction, these satisfactions is called utility.

 That is, total utility is always a positive, but diminishing concept. So, total utility curve is concave to the origin.

What is marginal utility?

Marginal utility is the additional satisfaction that we derived by consuming an extra unit of any commodity. So, marginal utility is the additional utility of any commodity, which we get by consuming more than a unit of that particular commodity.

For example, if we take an additional cup of coffee during the same period of time, the marginal satisfaction by consuming this extra cup of coffee that we are getting is known as marginal utility.

Marginal utility is always diminishing in nature, because if we consume more and more amount of any commodity the satisfaction that we get from the additional unit is diminishing. Suppose, at the same duration of time we take 5 cup of coffee consistently. Then the additional utility that we derived from the last cup is not giving us so much utility that we derived from the first cup. So, marginal utility is diminishing in nature.

What is diminishing marginal utility?

In economics, if a consumer consume a particular commodity consistently that is, without any break then the additional utility that the consumer derived is diminishing. This is known as diminishing marginal utility.

For example, if a consumer consumes too much cup of coffee during the same duration of time, he/she is feeling bad, or may be faces health issues.

Marginal utility curve

Examples of diminishing marginal utility

In real life there are dozens of example of diminishing marginal utility. When we travel short distance, the fair of the bus is high but at the same time if we travel long distance in the same bus, the additional fare that we have to pay is small amount. In direct tax system also government charges lower percentage of tax rates of low income group persons and higher percentage of tax rates of high income group persons. This tax system is known as progressive tax system.

Must read- Diamond water paradox

                      Utility and its kinds with differences

Algebraic derivation of marginal utility

Suppose, consumer is consumes q1 quantity of the commodity Q. So the utility derived from the first unit is U=U1 (q1). As the same process if the consumer consumes q2, q3, q4, q5 of the same commodity then the utility he /she get is U2 (q2),U3 (q3), U4 (q4),U5 (q5) and so on..

[If we use cardinal utility approach then utility is additive, on the other hand if we use ordinal utility we can ranked the preferred bundles]

Total utility curve

Now we can write the total utility, U=U (q), from the derivation of this function we can get marginal utility. So the Marginal utility, U’=du/dq. Total utility is always positive but as we consume more and more unit of a commodity marginal utility of the successive unit is decreased. That means du/dq >0, but d2U/dq2 <0.

Since the first Oder derivative is positive that means total utility curve is upward rising but second Oder derivative is negative that means total utility curve is concave to the origin.