Marginal utility

Marginal utility is an important concept in microeconomics. Marginal utility refers to the utility that an individual experiences when he consumes one more unit of a product.

Consumers will buy more units of a product if they experience that their marginal benefit is higher than the price of the product. Marginal utility is diminishing, this means that the marginal utility decreases the more units an individual is consuming of a product.

The first loaf of bread has a high marginal utility, the second loaf of bread has lower marginal utility and the third loaf of bread has even lower marginal utility. Consumers marginal utility determines their demand for products.