Marginal Utility

Total utility is the overall satisfaction from everything consumed. Marginal utility focuses on the extra satisfaction from the next unit.

For example, eating one slice of pizza when hungry might give a lot of satisfaction. A second slice adds more, but probably a bit less than the first. A third adds less again. If you are full, a fifth slice might give almost no extra satisfaction, or even make you feel worse. The marginal utility of each extra slice is falling.

This pattern explains much of consumer behaviour. People are generally willing to pay more for the first unit of something than for later units. That is why demand curves slope downwards and why businesses offer deals like "buy one, get the second half price" to encourage extra purchases.

Marginal utility also explains how people spread their spending. A rational consumer allocates money so that the last unit spent on each product gives roughly the same extra satisfaction. If one more unit spent on books would give more satisfaction than one more unit spent on clothes, they would shift spending towards books.