Marginal Utility

In economics, marginal utility refers to the additional utility derived by a consumer from the purchase of one more unit of a good. More formally, it is the rate of change of utility with respect to changes in the quantity of goods purchased (the first derivative). The concept is crucial in economic theory because decisions about how much of a given good to purchase are thought to be made on the margin; that is, the agent asks himself or herself, with respect to each additional unit of any good (whether oranges in the grocery bag or dollars of life-insurance coverage), whether his or her expected utility from purchasing it is sufficient to justify its cost. He or she may also consider whether a substitute expenditure ...