In economic terms, marginal utility of a good or service is the gain from an increase or loss from a decrease in the consumption of that good or service. The idea of marginal value is an important consideration when making production or purchasing decisions. A person should produce or purchase an additional item when the marginal utility exceeds the marginal cost .
Marginal Utility of Housing
The marginal utility of owning a second house is likely less than the marginal utility of owning the first house.
Marginal utility is measured on a per unit basis. When evaluating the marginal utility of any item, it is important to know in what unit utility is measured. The unit is based on the type of activity that you are trying to measure. If you are a consumer of potato chips, you might measure utility based on whether to buy another bag or have another hand full with your lunch. If you are a producer of potato chips, your marginal value might be defined by a pallet of potato chips. In general, marginal value should be measured based on the smallest unit of consumption or production related to the product in question.
It is also important to remember that utility is difficult to quantify since preferences vary based on the individual. Utility is rarely measured in terms of magnitude; utility is normally just about determining which option is the best choice. Since utility is rarely measured using cardinal means, it may seem difficult to determine a product's marginal value. Economists get around this by substituting dollar values. While this may fail to capture a specific individual's preferences and utility, it offers a good approximation based on everyone's collective preferences as defined by the market.