What’s it: Marginal benefit is an extra utility you get when adding one more consumption of goods. The utility can be satisfaction or happiness you get.
Suppose we quantify the value of marginal benefits. In that case, it is equal to the maximum price that you are willing to pay. You will continue to buy a product as long as the marginal benefit exceeds the actual price (as long as there is a consumer surplus).
In economics, we refer to the difference between the price you are willing to pay and the actual price as consumer surplus. Suppose you are eager to pay IDR 5,000 for a soft drink bottle, and the actual price is IDR 3000. So, the consumer surplus is IDR 2,000.
How does the marginal benefit explain the slope of the demand curve?
The marginal benefit concept is essential in explaining the reasons behind the downward slope of the demand curve. The more goods you consume, the more the benefits you get.
But, the extra benefits you get from each additional unit of goods will decrease. So, there is a negative correlation between the marginal benefit and the quantity you consume. And if we graph it, the marginal benefit curve will have downward sloping.
Why is that?
Let’s take a simple example.
You buy pizza to overcome hunger. After eating the first pizza, you are still unsatisfied.
You then buy a second pizza. While still enjoying the second pizza, your satisfaction is lower than the first. You are getting full after eating the second pizza.
If you buy the third one, it will give you less satisfaction than the second or first pizza. An additional benefit of consumption will continue to decrease as more pizza you eat. Since the next pizza gives you fewer benefits, you are willing to buy it only if its price is lower.
As I said earlier, the quantification of marginal benefits is the maximum price you are willing to pay. Because marginal benefits decrease, the price you are willing to pay will also go down as you increase consumption. Thus, the marginal benefit curve will reflect the demand curve.
