Marginal utility

In economics, utility is the satisfaction or benefit derived by consuming a product; thus the marginal utility of a goods or service is the change in the utility from an increase in the consumption of that good or service.

In the context of cardinal utility, 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, with a continuing reduction for greater amounts. Therefore, the fall in marginal utility as consumption increases is known as diminishing marginal utility. Mathematically:

Utility

Main article: Utility

Depending on which theory of utility is used, the interpretation of marginal utility can be meaningful or not. Economists have commonly described utility as if it were quantifiable, that is, as if different levels of utility could be compared along a numerical scale. This has affected the development and reception of theories of marginal utility. Quantitative concepts of utility allow familiar arithmetic operations, and further assumptions of continuity and differentiability greatly increase tractability.

Contemporary mainstream economic theory frequently defers metaphysical questions, and merely notes or assumes that preference structures conforming to certain rules can be usefully proxied by associating goods, services, or their uses with quantities, and defines "utility" as such a quantification.

Another conception is Benthamite philosophy, which equated usefulness with the production of pleasure and avoidance of pain, assumed subject to arithmetic operation. British economists, under the influence of this philosophy (especially by way of John Stuart Mill), viewed utility as "the feelings of pleasure and pain"and further as a "quantity of feeling" (emphasis added).

Though generally pursued outside of the mainstream methods, there are conceptions of utility that do not rely on quantification. For example, the Austrian school generally attributes value to the satisfaction of wants, and sometimes rejects even the possibility of quantification. It has been argued that the Austrian framework makes it possible to consider rational preferences that would otherwise be excluded.

In any standard framework, the same object may have different marginal utilities for different people, reflecting different preferences or individual circumstances.