5.2 : Marginal Utility

Consider a girl riding her motorcycle under the hot sun, feeling thirsty.

Spotting a gas station, she buys a bottle of water. This first bottle of water gives her immense satisfaction or utility.

Still thirsty, she gets another bottle of water.

However, the utility of this is less than the first.

If she drinks more bottles of water, she could experience negative utility.

Marginal utility measures a person's additional satisfaction from consuming one more unit of a commodity.

The law of diminishing marginal utility states that after a sufficient quantity of a commodity is consumed, the utility derived from each successive unit decreases, all other things being equal.

The division of water consumed in the number of bottles is an example. In reality, goods could be divided into hundreds or thousands of units. No matter how tiny the increments, each additional unit of good provides less satisfaction, resulting in a continuous diminishing curve on the graph.