Economics A2 · The price system and the microeconomy. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.
Utility is the satisfaction a consumer gets from consuming a good. Total utility is the satisfaction from all the units consumed. Marginal utility is the extra satisfaction from one more unit.
As a person consumes more of a good, each extra unit usually adds less satisfaction than the one before. This is diminishing marginal utility. Total utility still rises while marginal utility is positive, and it is at its maximum when marginal utility is zero.
A rational consumer spreads a fixed income so that the last dollar spent on each good gives the same marginal utility. This is the equi-marginal principle. It explains why demand curves slope downwards: when the price falls, the consumer buys more until the ratios are equal again.
Students compare marginal utilities alone and ignore prices. Always compare marginal utility per dollar (MU ÷ price), and buy more of the good with the higher figure.
Answer: The marginal utility of the last jar of coffee is 20 utils.
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Indifference curves and budget lines →Take a Economics A2 test