Microeconomics,, 16th Canadian Edition

6.1 Marginal Utility and Consumer

Choice LO 1, 2

Marginal utility theory distinguishes between the total utility from the

consumption of all units of some product and the marginal utility

derived from consuming one more unit of the product.

The basic assumption in marginal utility theory is that the utility

consumers derive (over some given time period) from the

consumption of successive units of a product diminishes as the

number of units consumed increases.

Utility-maximizing consumers make their choices such that the

utilities derived from the last dollar spent on each product are equal.

For two goods X and Y, utility will be maximized when

Demand curves have negative slopes because when the price of one

product falls, consumers respond by increasing purchases of that

product sufficiently to restore the ratio of that product’s marginal

utility to its now lower price (MU/p) to the same level achieved for all

other products.

Market demand curves for any product are derived by horizontally

summing all of the individual demand curves for that product.

MpUXX = MpUYY