Marginal Benefit Definition in Economics

Marginal benefit is an economic term that refers to the additional satisfaction created by the consumption of one more unit of a good or service. Considering the marginal benefit is essential to making a cost-benefit analysis, or a comparison of the costs and benefits of a choice.

Example

Suppose you're hungry and willing to buy a sandwich for $15. You would enjoy a second sandwich less, and may be willing to pay only $7.50 for a second sandwich. In that case, the marginal benefit of a second sandwich is $7.50. If you're pretty full, eating a third sandwich may provide you with an additional satisfaction worth only $3. If sandwiches cost more than $3, you won't buy a third sandwich.

Features

Marginal benefit usually decreases as consumption of a good or service increases, because people tend to like variety. This is called "The Law of Diminishing Marginal Utility."

Considerations

Because people value goods and services differently, each person's marginal benefit from a good or service will vary. Economists measure marginal benefit in both monetary terms and in hypothetical units of satisfaction.

References

• Humboldt State University: Marginal Analysis
• Investopedia: Marginal Benefit and Marginal Cost