Marginal Utility vs Utility Maximization Rule

Marginal utility is the additional satisfaction gained from consuming one more unit of a good.

It typically falls as you consume more of a good, a pattern called diminishing marginal utility. Consumers compare marginal utility per dollar across goods to allocate spending. When marginal utility is negative, consuming more actually reduces total utility.

The utility-maximization rule says consumers maximize satisfaction by equalizing the marginal utility per dollar spent across all goods.

A consumer is in equilibrium when the last dollar spent on each good yields the same marginal utility. If one good gives more marginal utility per dollar, the consumer shifts spending toward it until the ratios are equal, subject to the budget.