Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does marginal utility refer to?

1. The total satisfaction from all units consumed

2. The benefit gained from consuming an additional unit

3. The cost of producing an additional unit

4. The loss of satisfaction from reducing consumption

The correct answer is: The benefit gained from consuming an additional unit

Marginal utility refers to the additional satisfaction or benefit gained from consuming one more unit of a good or service. This concept is pivotal in economics, as it helps to explain consumer behavior and how individuals make decisions about their purchases. When a consumer decides to purchase or consume an additional unit, the marginal utility represents the increased satisfaction they receive from that choice. For example, if someone eats one slice of pizza and enjoys it, the satisfaction they derive from eating a second slice may be less, hence the marginal utility of the second slice is the extra enjoyment they get compared to eating just one. This diminishing marginal utility often influences consumer decisions, as people tend to derive less satisfaction from each additional unit consumed past a certain point. The other options relate to different economic concepts: the total satisfaction from all units consumed reflects overall utility rather than marginal, the cost of producing an additional unit pertains to production costs and economics of scale, and the loss of satisfaction from reducing consumption refers to the concept of utility loss rather than the specific additional benefit from consumption. Understanding marginal utility is crucial for comprehending how consumers allocate their resources to maximize satisfaction.