The concept of the Margin

Question 1

Explain Marginal utility

Answer 1

Marginal utility is the satisfaction a consumer gains from consuming one extra unit of the good.

It is thought that marginal utility declines per extra consumption of a good, this i because consumers get tired of the good, and there is a point at which consumers need no more of the good.

Therefore consumers are less willing to pay more for an extra unit. That is why the demand curve is downward sloping (Diminishing marginal utility)

Question 2

Explain Total Utility

Answer 2

Total utility refers to the complete amount of satisfaction gained from consuming the extra units.
Total utility is maximised at the point where marginal utility = 0
Total utlity is calculated by adding all of the marginal utlity of a good.

Question 3

Calculate Marginal Utility

Answer 3

Marginal Utility of X = Total Utility of (XN + 1) - Total Utility of (XN)