In the context of cardinal utility, economists sometimes speak of a law of diminishing marginal utility, utility in economics tagalog that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. The term marginal refers to a small change, starting from some baseline level.
For reasons of tractability, it is often assumed in neoclassical analysis that goods and services are continuously divisible. In practice the smallest relevant division may be quite large. Sometimes economic analysis concerns the marginal values associated with a change of one unit of a discrete good or service, such as a motor vehicle or a haircut. For a motor vehicle, the total number of motor vehicles produced is large enough for a continuous assumption to be reasonable: this may not be true for, say, an aircraft carrier. Depending on which theory of utility is used, the interpretation of marginal utility can be meaningful or not.
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Economists have commonly described utility as if it were quantifiable, that is, as if different levels of utility could be compared along a numerical scale. Contemporary mainstream economic theory frequently defers metaphysical questions, and merely notes or assumes that preference structures conforming to certain rules can be usefully proxied by associating goods, services, or their uses with quantities, and defines “utility” as such a quantification. Another conception is Benthamite philosophy, which equated usefulness with the production of pleasure and avoidance of pain, assumed subject to arithmetic operation. Though generally pursued outside of the mainstream methods, there are conceptions of utility that do not rely on quantification.
In any standard framework, the same object may have different marginal utilities for different people, reflecting different preferences or individual circumstances. Please help improve it or discuss these issues on the talk page. The neutrality of this section is disputed. Relevant discussion may be found on the talk page. This section does not cite any sources. This refers to the increase in utility an individual gains from increasing their consumption of a particular good. In modern economics, choice under conditions of certainty at a single point in time is modeled via ordinal utility, in which the numbers assigned to the utility of a particular circumstance of the individual have no meaning by themselves, but which of two alternative circumstances has higher utility is meaningful.
As the rate of commodity acquisition increases, marginal utility decreases. If commodity consumption continues to rise, marginal utility at some point may fall to zero, reaching maximum total utility. Diminishing marginal utility is traditionally a microeconomic concept and often holds for an individual, although the marginal utility of a good or service might be increasing as well. As suggested elsewhere in this article, occasionally one may come across a situation in which marginal utility increases even at a macroeconomic level. For example, the provision of a service may only be viable if it accessible to most or all of the population, and the marginal utility of a raw material required to provide such a service will increase at the “tipping point” at which this occurs. Marginalism explains choice with the hypothesis that people decide whether to effect any given change based on the marginal utility of that change, with rival alternatives being chosen based upon which has the greatest marginal utility. If an individual possesses a good or service whose marginal utility to him is less than that of some other good or service for which he could trade it, then it is in his interest to effect that trade.