Marginal utility and an individual demand curve
| English | 中文 | Pinyin |
|---|---|---|
| marginal utility/ˈmɑːdʒɪnl juːˈtɪlɪti/ | 边际效用 | biān jì xiào yòng |
| diminishing marginal utility/dɪˈmɪnɪʃɪŋ ˈmɑːdʒɪnl juːˈtɪlɪti/ | 边际效用递减 | biān jì xiào yòng dì jiǎn |
A decision you can investigate
- The first bottle of water after exercise is highly valued; a fifth bottle may add little satisfaction.
- The benefit of one more unit differs from total satisfaction from all units.
Build the explanation
- Marginal utility 边际效用 is additional satisfaction from an extra unit. Diminishing marginal utility 边际效用递减 means each further unit adds less satisfaction over the relevant range. With other factors fixed, a lower price may be needed to make additional units worth buying; this helps explain downward individual demand.
- Demand requires willingness and ability to buy at alternative prices. Own price changes give movements along demand. Substitute/complement prices, real income, tastes, population size/age and advertising can shift demand.
Work through the evidence
- A fictional buyer with enough budget has maximum willingness to pay for four bottles of 12, 8, 5 and 2 yuan. At price 6, the first two are worth buying but the third is not: quantity is 2, with total payment 12. At price 4, quantity becomes 3.
- If safe drinking fountains become more available, demand for purchased water may shift left because a substitute is more attractive. A hot-weather preference change may shift it right; these shifts differ from the movement after water’s own price changes.
At price 6, how many bottles does this buyer choose?
The third bottle is valued at 5, below the price.
What can happen to total utility when marginal utility remains positive but falls?
Each unit still adds satisfaction, but by a smaller amount.
A falling marginal valuation implies every additional unit makes total satisfaction lower.
Positive additions can diminish while total satisfaction continues rising.
Test the limits
- The example uses willingness-to-pay units as a monetary representation of marginal valuation, not direct measurement of psychological utility. Diminishing marginal utility does not mean total utility must fall; it can rise more slowly.
- The individual model does not by itself determine market demand: aggregate buyers differ. A simultaneous income or substitute-price change can invalidate an own-price-only interpretation.
What is more directly a demand shift?
A change in alternatives changes valuation at each price.
Apply and explain your answer
- Why does quantity rise from 2 to 3 when price falls from 6 to 4?
- The third bottle’s marginal valuation of 5 now exceeds its price.
Match the terms to their meanings.
Use each term for its stated economic relationship.
Use the terms precisely
- marginal utility: Additional satisfaction from consuming one more unit.
- diminishing marginal utility: Additional satisfaction falls as more units are consumed over a stated range.
A fictional buyer with enough budget has maximum willingness to pay for four bottles of 12, 8, 5 and 2 yuan. At price 6, the first two are worth buying but the third is not: quantity is 2, with total payment 12. At price 4, quantity becomes 3. If safe drinking fountains become more available, demand for purchased water may shift left because a substitute is more attractive. A hot-weather preference change may shift it right; these shifts differ from the movement after water’s own price changes.
The example uses willingness-to-pay units as a monetary representation of marginal valuation, not direct measurement of psychological utility. Diminishing marginal utility does not mean total utility must fall; it can rise more slowly. The individual model does not by itself determine market demand: aggregate buyers differ. A simultaneous income or substitute-price change can invalidate an own-price-only interpretation.
Marginal utility is additional satisfaction from an extra unit. Diminishing marginal utility means each further unit adds less satisfaction over the relevant range. With other factors fixed, a lower price may be needed to make additional units worth buying; this helps explain downward individual demand.