Goods and services have uses {utility, economics}|. Economic decisions are about whether to buy or produce one more good or service {marginal principle, decision}. Total consumption or production results from decisions.
marginal utility
Purchase of one more good or service has value related to use {marginal utility, purchase}. Marginal utility decreases as quantity increases {diminishing marginal utility law, quantity}. Last item has lower value than first item, if item price, consumer preferences, consumer income, and other item prices remain the same.
price
Good or service price is marginal value for current consumer.
preferences
For any good or service pair, one combination gives optimum satisfaction, and many combinations give equal satisfaction.
consumption and saving
People have consumption uses {utility of consumption} {consumption utility} and saving uses {utility of saving} {saving utility}. Consumption has value related to use {marginal utility of consumption}, and saving has marginal utility {marginal utility of saving}. Total consumption utility is sum of personal and business consumption utilities. Maximum total consumption utility results when all goods and services have same marginal utility divided by price, because buying another item can gain no more utility.
To maximize total utility, marginal consumption utility equals marginal saving utility, because switching consumption and saving can gain no more utility. Therefore, savings rise as income rises. Leisure marginal utility equals labor marginal utility, because trading work and leisure can gain no more utility.
For serial good or service purchases, the last good or service purchased has a value {margin}| {marginal utility}. Last item has lower value than first item.
Economic decisions are whether to buy or produce one more good or service {marginal principle, psychology}|, not about total consumption or production.
Good or service market price is typically below good or service marginal value to most consumers {consumers' surplus}.
Marginal utility decreases as quantity increases {diminishing marginal utility law, psychology} {law of diminishing marginal utility} {diminishing returns law}| {law of diminishing returns} {decreasing returns law} {law of decreasing returns}. Last item has lower value than first item.
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Date Modified: 2022.0225