Why You Stop Buying Suya at the Third Stick

Lesson notes

Key points

• Marginal utility is the extra satisfaction from consuming one more unit of a good, holding everything else constant.
• Diminishing marginal utility says each extra unit adds less satisfaction than the one before it.
• A rational consumer allocates income so the marginal utility per naira is equal across all goods.
• If suya gives more utility per naira than bread, buying more suya and less bread raises total utility until ratios equalise.

Definitions

Marginal utility

Extra satisfaction gained from consuming one additional unit of a good, ceteris paribus

Takeaway: Equilibrium: marginal utility per naira is equal across goods.

Marginal utilityDiminishing MUEquimarginal ruleReallocation