Utility theory: total and marginal utility, and the hypothesis of diminishing marginal utility
Utility means the satisfaction a consumer gets from a good or service. Each extra unit consumed adds less satisfaction than the one before — economists call this diminishing marginal utility.
Formula
MU = ΔTU ÷ ΔQ
Real World
A McDonald's customer might enjoy their first cheeseburger enormously, find the second satisfying, and struggle to finish the third — total utility rises but at a falling rate, precisely illustrating diminishing marginal utility.
Exam Focus
Sketch a TU and MU diagram together: MU must hit zero when TU peaks — examiners check this relationship specifically.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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