Marginal utility is the added satisfaction received from consuming one more unit, and marginal willingness to pay is the maximum amount a consumer would pay for one more unit, or the value of the best thing she would give up in exchange for one more unit, so these two can be thought of as the same thing. If we add up the marginal willingness to pay for each unit, we have total willingness to pay or total utility.
A consumer is willing to pay less per unit the more units she has because her satisfaction increases by less with each added unit. This is known as diminishing marginal utility, or declining marginal willingness to pay.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved