Marginal Utility

Marginal utility can be defined as the change in the total utility resulting from a one-unit change in the consumption .If a commodity IH~I’ unit  time. When a man is purchasing a commodity. he is consciously or unconsciously weighing in his mind the price he has to pay and the utility or each unit that he buys. lie will continue purchasing till the marginal utility equals the price. lIere is a fundamental proposition of the theory of consumer demand.A consumer will exchange money for units of any commodity A, up to the point where the last (marginal) unit of A which he buys has for him a marginal significance in terms of money just equal to its money price.

Refer 10 the table given on page 51. Where will our consumer stop? It depends upon the price. If the price is 6 paise per toast. then he will Slop at the 5th, for there the marginal utility is equal to the price (marginal utility being represented in Paise units). If the price is II Paise per toast. he will stop at the 4th, and. if they are free, then he will go on consuming till the additional utility comes down to zero (i.e.• up to the 6th unit). He will not go beyond this point because disutility will be the result. TIle consumer stops at a point where the price and the marginal utility arc just equal. This is called the marginal purchase and the extra utility at Ihi~ pili”! is called the marginal utility. II is a point wl;t·!’l· we consider just worthwhile tll purchase, for here the pain of parting with the money and the benefit  derived from the purchase of the commodity just balance.

Marginal utility has also been defined as the addition nuule III Ihe tutul  worthw hill’. In other words, it may be defined as the change in total utility resulting from a unit change in the quantity of lite commodity consumed. Thus, if we buy 5 toasts, the 5th is the marginal toast. But and not total utility that determines price, otherwise the price of water should have been high, and that of gold low. Really, marginal utility does not determine price; it simply indicates it. The determining factors are demand and supply. If the price changes, marginal utility will change too. Price and marginal utility thus move together up and down.