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{{Short description|Benefit derived from consuming a product}}
{{weasel|date=October 2021}}
In [[economics]], [[utility]] refers to the satisfaction or benefit that consumers derive from consuming a product or service.<ref>{{Cite web|title=Marginal Utility|url=https://www.britannica.com/topic/marginal-utility}}</ref> '''Marginal utility''' on the other hand, describes the change in pleasure or satisfaction resulting from an increase or decrease in consumption of one unit of a good or service. Marginal utility can be positive, negative, or zero.{{
For example, when eating pizza, the second piece brings more satisfaction than the first, indicating positive marginal utility. However, after the third or fourth piece, the satisfaction level starts to decrease, indicating zero or negative marginal utility.{{
In the context of [[cardinal utility]], economists postulate a '''law of diminishing marginal utility.''' This law states that the first [[units of measurement|unit]] of consumption of a good or service yields more satisfaction or utility than the subsequent units, and there is a continuing reduction in satisfaction or utility for greater amounts. As consumption increases, the additional satisfaction or utility gained from each additional unit consumed falls, a concept known as '''diminishing marginal utility.''' This idea is used by economics to determine the optimal quantity of a good or service that a consumer is willing to purchase.
== Marginality ==
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<blockquote>Marginal considerations are considerations which concern a slight increase or diminution of the stock of anything which we possess or are considering.<ref>[[Philip Wicksteed|Wicksteed, Philip Henry]]; ''The Common Sense of Political Economy'' (1910), Bk I Ch 2 and elsewhere.</ref>
Another way to think of the term marginal is the cost or benefit of the next unit used or consumed, for example the benefit that you might get from consuming a piece of chocolate. The key to understanding marginality is through [[marginal analysis]]. Marginal analysis examines the additional benefits of an activity compared to additional costs sustained by that same activity. In practice, companies use marginal analysis to assist them in [[maximizing]] their potential profits and often used when making decisions about expanding or reducing production.{{
== Utility ==
'''[[Utility]]''' is an economic concept that refers to the level of satisfaction or benefit that individuals derive from consuming a particular good or service, which is quantifies using units known as '''utils''' (derived from the Spanish word for ''useful''). However, determining the exact level of utility that a consumer experiences can be a challenging and abstract task. To overcome this challenge, economists rely on the consent of '''revealed preferences,''' where they observe the choices made by consumers and use this information to rank consumption options from the least preferred to the most desirable.{{
Initially, the term utility equated usefulness with the production of pleasure and avoidance of pain by moral philosophers, Jeremy Bentham and John Stuart Mill.
Contemporary mainstream economic theory frequently defers metaphysical questions, and merely notes or assumes that preference structures conforming to certain rules can be usefully ''proxied'' by associating goods, services, or their uses with quantities, and ''defines'' "utility" as such a quantification.<ref>[[David M. Kreps|Kreps, David Marc]]; ''A Course in Microeconomic Theory'', Chapter two: ''The theory of consumer choice and demand'', ''Utility representations''.</ref>
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[[Alfred Marshall]], a British economist, observed that as you accumulate more of something, your desire for it decreases. Economists refer to this phenomenon as diminishing marginal utility.<ref>{{Cite journal|author= H.G. |url= https://mitpress.mit.edu/9780262070904/the-laws-of-human-relations-and-the-rules-of-human-action-derived-therefrom/ |title= The Laws of Human Relations and the Rules of Human Action Derived Therefrom|journal= Economist |year= 1983 }}</ref> Essentially, each additional unit of a good or service you consume adds less and less to your overall satisfaction. For example, three bites of candy are better than two bites, but the twentieth bite does not add much to the experience beyond the nineteenth (and could even make it worse).
|journal= Econometrica |year= 1979 }}</ref> This concept is fundamental to understanding a variety of economic phenomena, such as, i[[time preference]] and the [[Value (economics)|value of goods]] . Specifically, the law states, first, that the marginal utility of each homogeneous unit decreases as the supply of units increases (and vice versa); second, that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit (and vice versa). The first law denotes the law of diminishing marginal utility; the second law denotes the law of increasing total utility."<ref name=Mises/>
Modern economics employs [[ordinal utility]] to model decision-making under certainty at a specific point in time. In this approach, the number assignment to an individual's utility for a particular situation hold no significance on their own. Rather, the significance lies in the comparison between two different circumstances and which one holds a higher utility. With ordinal utility, a person's preferences do not have a unique marginal utility, making the concept of diminishing marginal utility irrelevant. On the other hand, diminishing marginal utility is a significant concept in [[cardinal utility]], which is used to analyse [[intertemporal choice]], [[expected utility hypothesis|choice under uncertainty]], and [[social welfare function|social welfare]] in modern economic theory.
|url=https://journals.indexcopernicus.com/api/file/viewByFileId/686333.pdf}}</ref>
The law of diminishing marginal utility is that subjective value changes most dynamically near the zero points and quickly levels off as gains (or losses) accumulate. And it is reflected in the concave shape of most subjective utility functions.<ref name=":1">{{Cite web |title=Marginal Utility & its Diminishing Methods |url=https://www.adda247.com/school/law-of-diminishing-marginal-utility/}}</ref>
Given a concave relationship between objective gains (x-axis) and subjective value (y-axis), each one-unit gain produces a smaller increase in subjective value than the previous gain of an equal unit. The marginal utility, or the change in subjective value above the existing level, diminishes as gains increase.<ref>{{Cite book | author = E.T. Berkman,L.E. Kahn,J.L. Livingston | title = Self-Regulation and Ego Control | location = United States | date = 2016 | chapter= Chapter 13 Valuation as a Mechanism of Self-Control and Ego Depletion | pages = 255–279 | isbn = 978-0-12-801850-7}}</ref>
As the rate of commodity acquisition increases, the ''marginal'' utility decreases. If commodity consumption continues to rise, the marginal utility will eventually reach zero, and the total utility will be at its maximum. Beyond that point, any further increase in commodity consumption leads to negative marginal utility, which represents dissatisfaction. For example, beyond some point, further doses of antibiotics would kill no pathogens at all and might even become harmful to the body. Diminishing marginal utility is traditionally a microeconomic concept and often holds for an individual, although the marginal utility of a good or service might be ''increasing'' as well. For example, dosages of antibiotics, where having too few pills would leave bacteria with greater resistance, but a full supply could affect a cure.
As mentioned earlier in this article, there are instances where marginal utility can increase on a macroeconomic level. For instance, offering a service may only be feasible if it's accessible to the majority or all of the population. At the point where this becomes a reality, the marginal utility of the raw material required to provide the service will increase significantly. This is akin to situations involving massive objects like aircraft carriers, where the quantity of such items is so small that the concept of marginal utility becomes irrelevant, and the decision to acquire them is a simple binary choice between "yes" or "no".
== Marginalist theory ==
[[Marginalism]] is an economic theory and method of analysis that suggests that individuals make economic decisions by weighing the benefits of consuming an additional unit of a good or service against the cost of acquiring it. In other words, value is determined by the additional utility of satisfaction provided by each extra unit consumed.{{
=== Market price and diminishing marginal utility ===
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=== Proto-marginalist approaches ===
Perhaps the essence of a notion of diminishing marginal utility can be found in [[Aristotle]]'s [[Politics (Aristotle)|''Politics'']], wherein he writes {{
There has been marked disagreement about the development and role of marginal considerations in Aristotle's value theory.<ref>{{cite journal |last=Soudek |first=Josef |title=Aristotle's Theory of Exchange: An Inquiry into the Origin of Economic Analysis |journal=Proceedings of the American Philosophical Society |volume=96 |issue=1 |year=1952 |pages=45–75 |jstor=3143742 }}</ref><ref name="kauder">{{cite journal |last=Kauder |first=Emil |title=Genesis of the Marginal Utility Theory from Aristotle to the End of the Eighteenth Century |journal=[[The Economic Journal]] |volume=63 |issue=251 |year=1953 |pages=638–50 |jstor=2226451 |doi=10.2307/2226451}}</ref><ref>{{cite journal |last=Gordon |first=Barry Lewis John |title=Aristotle and the Development of Value Theory |journal=[[Quarterly Journal of Economics]] |volume=78 |issue=1 |pages=115–28 |year=1964 |jstor=1880547 |doi=10.2307/1880547}}</ref><ref name="schumArist">Schumpeter, Joseph Alois; ''History of Economic Analysis'' (1954) Part II Chapter 1 §3.</ref><ref>Meikle, Scott; ''Aristoteles' Economic Thought'' (1995) Chapters 1, 2, & 6.</ref>
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Like the Italian mercantists, [[Étienne Bonnot de Condillac|Étienne Bonnot, Abbé de Condillac]], saw value as determined by utility associated with the class to which the good belong, and by estimated scarcity. In ''{{Lang|fr|De commerce et le gouvernement}}'' (1776), Condillac emphasized that value is not based upon cost but that costs were paid because of value.
This last point was famously restated by the Nineteenth Century proto-marginalist, [[Richard Whately]], who in ''Introductory Lectures on Political Economy'' (1832) wrote: {{
=== Marginalists before the Revolution ===
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In ''An Outline of the Science of Political Economy'' (1836), [[Nassau William Senior]] asserted that marginal utilities were the ultimate determinant of demand, yet apparently did not pursue implications, though some interpret his work as indeed doing just that.<ref>{{cite journal |last=White |first=Michael V. |title=Diamonds Are Forever(?): Nassau Senior and Utility Theory |journal=[[The Manchester School (journal)|The Manchester School]] |volume=60 |year=1992 |issue=1 |pages=64–78 |doi=10.1111/j.1467-9957.1992.tb00211.x }}</ref>
In "''{{Lang|fr|De la mesure de l'utilité des travaux publics}}''" (1844), [[Jules Dupuit]] applied a conception of marginal utility to the problem of determining bridge tolls.<ref>{{cite journal |last=Dupuit |first=Jules |title=De la mesure de l'utilité des travaux publics |journal=Annales des ponts et chaussées |series=Second series |volume=8 |year=1844 }}</ref>
In 1854, [[Hermann Heinrich Gossen]] published {{Lang|de|Die Entwicklung der Gesetze des menschlichen Verkehrs und der daraus fließenden Regeln für menschliches Handeln}}, which presented a marginal utility theory and to a very large extent worked-out its implications for the behavior of a market economy. However, Gossen's work was not well received in the Germany of his time, most copies were destroyed unsold, and he was virtually forgotten until rediscovered after the so-called Marginal Revolution.{{Citation needed|date=October 2021}}
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==== Marginal Revolution and Marxism ====
[[Karl Marx]] acknowledged that "nothing can have value, without being an object of utility",<ref>Marx, Karl Heinrich; ''Capital'' V1 Ch 1 §1.</ref><ref>Marx, Karl Heinrich; [http://www.marxists.org/archive/marx/works/1857/grundrisse/f239-289.htm ''Grundrisse''] (completed in 1857 though not published until much later)</ref> but in his analysis "use-value as such lies outside the sphere of investigation of political economy",<ref>[[Karl Marx|Marx, Karl Heinrich]]: ''A Contribution to the Critique of Political Economy'' (1859), p. 276</ref> with labor being the principal determinant of value under capitalism.{{
Many scholars interpret the doctrines of marginalism and the Marginal Revolution as a response to [[Marxism|Marxist economics]].<ref name=":02">{{cite book |author-last1=Screpanti |author-first1=Ernesto |title=An Outline of the History of Economic Theory |author-last2=Zamagni |author-first2=Stefano |publisher=[[Oxford University Press]] |year=2005 |pages=170–173 |author-link1=Ernesto Screpanti |author-link2=Stefano Zamagni}}</ref> However, this view is somewhat flawed, as the first volume of ''[[Das Kapital]]'' was not published until July 1867, which was after the works of Jevons, Menger, and Walras had either been writter or were under way (Walras published {{Lang|fr|Éléments d'économie politique pure}} in 1874 and Carl Menger published ''Principles of Economics'' in 1871); Marx was still a relatively minor figure when these works were completed and it is unlikely that any of these economists knew anything about him. Some scholars, such as, [[Friedrich Hayek]] and [[W. W. Bartley III]], have suggested that Marx, may have come across the works of one or more of these economists while reading at the [[British Museum]]. However, it is also possible that Marx's inability to formulate a viable critique may account for his failure to complete any further volumes of ''Kapital'' before his death.<ref>Hayek, Friedrich August von, with [[William Warren Bartley|William Warren Bartley III]]; ''The Fatal Conceit: The Errors of Socialism'' (1988) p. 150.</ref>
Despite the fact the Marxist economics wasn't an immediate target for the marginalists, it is possible to argue that the new generation of economists succeeded partly because they were able to provide simple responses to Marxist economic theory. One of the most well know responses was Böhm-Bawerk, {{Lang|de|Zum Abschluss des Marxschen Systems}} (1896),<ref>Böhm-Bawerk, Eugen Ritter von: "''Zum Abschluss des Marxschen Systems''" <nowiki>[</nowiki>"On the Closure of the Marxist System"<nowiki>]</nowiki>, ''Staatswiss. Arbeiten. Festgabe für [[Karl Knies|K. Knies]]'' (1896).</ref>
It is noteworthy to mention that certain followers of [[Henry George|Henry George's]] ideas view marginalism and neoclassical economics as a response to ''[[Progress and Poverty]]'', which was published in 1879.<ref>[[Mason Gaffney|Gaffney, Mason]], and Fred Harrison: ''The Corruption of Economics'' (1994).</ref>
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