Simplicable Guide

11 Examples of Marginal Utility

John Spacey, July 28, 2018

Marginal utility is the value that an individual enjoys by purchasing one more item. As a general principle, marginal utility declines the more you buy. If you have a lot of something, having one more is of less value to you. The following are illustrative examples.

Commodities

If you are walking in the desert and you haven't had water for many hours, you might be willing to pay a very high price for a bottle of water.

Land

If your house is on 0.25 acres of land, adding 1 acre may completely change your life. If your house is on 500 acres of land, you could add an acre without noticing.

Consumer Products

Many consumers are happy with a single smart phone and wouldn't know what to do with a second.

Business Products

A small business buys a second office printer because their first printer is often busy. They consider buying a third but decide it wouldn't get used much.

Assets

A single tractor is priceless to a small farm, a second tractor is of no use.

Money

If you have $100 in the bank, an extra $10,000 might make a big difference to you. If you have, $100,000,000 in the bank, an extra $10,000 might not be meaningful to your life.

Public Goods

Connecting two cities with a road has significant value. Expanding the road to have four lanes may have less value.

Services

If you don't have access to a streaming music service, subscribing to one may have significant value. Subscribing to a second music service may have far less value. Ideally, a consumer would want one service that has all songs.

Experiences

If you have never been to Paris, a trip to Paris may be a peak experience. If you have been to Paris hundreds of times, a visit may be routine.

Knowledge

If you know hundreds of thousands of things about baseball, learning another baseball statistic may have little value. If you know nothing about baseball, learning a fact about baseball may serve as a useful reference.

Time

If you only have five minutes to talk to someone, an extra five minutes might be valuable. If you are on a 13 hour flight with someone, an extra 5 minutes of conversation might not be as valuable.

Notes

The Law Of Diminishing Marginal Utility is a fundamental principle of Economics that states that as consumption increases, marginal utility declines. This is a rule of thumb that is used as an assumption to support many economic models and theories. There are exceptions to this rule. For example, a inline skating enthusiast needs exactly 8 new wheels to get back into the sport such that 1-7 wheels have no value to them and exactly 8 wheels is the peak of value.