CHAPTER 30: UTILITY

Utility: It is the satisfaction got from consuming goods or services. In utility satisfaction is quantified in
order to determine the actual goods consumed.

Total utitlity: is the total satisfaction received from consumption.

Marginal utility: the additional utility that a consumer receives by purchasing an extra unit of a good or
service. Forexample; If someone gets 10 units of satisfaction from consuming one piece of pizza and 15
units after consuming two pieces of pizza, then the marginal utility is 5 units.

The law of diminishing margianl utility: The law of diminishing marginal utility states that, all else equal,
as consumption increases, the marginal utility derived from each additional unit decreases. To
understand this better; Suppose there is customer who wants pizza and buys 1 slice of it for 2$ and his
willing to pay for the 2nd slice for 1.50$ and then the 3rd slice for 1.25$, this is because the more the
consumer consumed the product the less satifaction he was getting from it.

The equi-marginal principle