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What is the difference between marginal utility and marginal value?


Depending on the context, marginal utility and marginal value can describe the same thing. The key word for each is "marginal," that is, the incremental change based on the per-unit shift in a good or service. This may sound complicated, but it really is not. Once you understand the meaning behind economic concepts such as marginal and utility, it is easy to see what differences, if any, exist between the two terms.

Understanding Marginalism

One of the most important revolutions in economic thinking took place in the 1870s, when economists discovered that human beings make decisions "on the margin."

For example, how much a consumer is willing to pay for a bottle of water right now depends entirely on his own subjective valuations and needs of the moment. It has nothing to do with the labor costs of producing a bottle of water, but rather how much he temporarily values one additional bottle.

This helps explain why one additional unit of water is rarely as valuable as one additional diamond or iPhone, even though water helps sustain life in a very meaningful way while the others are unnecessary consumer goods. Water is very abundant and easy to obtain compared to iPhones and diamonds. So when a business owner or individual makes an economic decision, he does so marginally based on how valuable one extra unit is at a specific point and time.

Understanding Utility and Value

Utility is the economic term for satisfaction. A basic economic insight is human beings act purposefully to satisfy wants or to remove discomfort. The more utility an item has, the more value human beings are willing to assign to it.

In this way, utility can be synonymous with subjective human value. However, utility is not the same thing as market value, which is expressed in dollars, because utility is personal and market value is aggregated and impersonal.

If a toy company increases its marginal value by boosting its economies of scale, this has nothing to do with any one person's individual marginal utility. Here, marginal value just means an incremental increase in market value.

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