Rajahyötyarvo

Rajahyötyarvo, a Finnish term, translates to marginal utility in economics. It refers to the additional satisfaction or benefit a consumer gains from consuming one more unit of a good or service. This concept is fundamental to understanding consumer behavior and demand.

The principle of diminishing marginal utility states that as a person consumes more of a good, the additional satisfaction derived from each subsequent unit tends to decrease. For example, the first slice of pizza might provide a great deal of satisfaction, but the tenth slice will likely provide much less. This is why the demand curve for most goods slopes downwards. Consumers are willing to buy more of a product only if its price decreases, reflecting the lower marginal utility they receive from additional units.

Rajahyötyarvo helps explain how consumers allocate their limited resources to maximize their overall satisfaction. They tend to spend their money in a way that equates the marginal utility per dollar spent across different goods. If the marginal utility per dollar is higher for one good than another, a rational consumer will shift their spending towards the good that offers greater additional satisfaction for the money. This principle is a cornerstone of microeconomic theory.