that we've already thought about multiple times

in the context of many, many videos.

And this is the idea of utility-- utility, which

is really just a way of saying how much benefit

or satisfaction or value do you get out

of getting a good or service.

But the angle that we're going to take in this video

is going to be slightly different.

In the past, when we were measuring benefit or value,

we either measured in terms of dollars,

where we said, hey, the benefit of getting an incremental Honda

Civic was $5,000.

And we talk about the incremental--

we're talking about, and we've heard the word many times--

we were talking about the marginal benefit.

Or early on, when we talked about the production

possibilities frontier and we talked

about the marginal benefit of another squirrel,

we were talking about it in terms of berries.

We were talking about it in terms

of another good or service.

What we're going to do in this video

is just think about it in absolute terms.

We're just going to think of some arbitrary way of measuring

utility and then just assign values to.

What's the value of getting one chocolate bar?

And then what's the value that we give to the next chocolate

bar and then the chocolate bar after that?

And we're going to do the same things about fruit.

And from that, we're going to see

if we can build up some of the things

that we already know about demand curves

and how things relate to price and the price of other goods

and things like that.

And in particular, we're going to focus on marginal utility.

So obviously, you could have total utility.

If I have four chocolate bars, you

could say the total utility I'm getting from all four of them.

Or, you could think about marginal utility,

the utility I'm getting from the next incremental chocolate

bar or the next incremental pound of fruit.

And before I move on, there's one thing--

and this was a point of confusion for me

when I first learned this-- is OK,

I'm using the word marginal utility now.

In the past, I've used the word marginal benefit.

They sound very similar.

In fact, I even used the word benefit

when I defined the word utility.

How are these two things different?

And the simple answer is, conceptually, they aren't.

Conceptually, they are the exact same thing.

The difference is how the words tend

to be used in the context of a traditional microeconomics

class.

So when people talk about utility,

they tend to measure it in terms of some type

of absolute measure that they just came up with.

You can view them as utility unit,

some type of satisfaction units.

While when they talk about marginal benefit,

they tend to measure it either in dollars

or in terms of some other goods.

But I've seen either term used either way.

So they really do mean the exact same thing.

But in this video, we're going to use the term utility,

and we're going to come up with a measuring scale,

and it's a somewhat arbitrary one.

And we're going to use that to come up

with some conclusions about the basket of goods someone

might purchase depending on different prices.

So as you could imagine, I pre-wrote these two things.

We're going to talk about chocolate bars,

and we are going to talk about fruit.

So right here in these little tables here,

I've shown the marginal utility of each incremental.

In the case of chocolate bars, each incremental bar,

and in the case of fruit, each incremental pound of fruit.

So this is saying that first chocolate bar-- obviously,

if I have no chocolate bars I'm getting

no utility from chocolate bars-- and this

is saying that that first chocolate

bar has a marginal utility.

So the utility of that next incremental one is 100.

I'm not saying $100.

I'm not saying it's equivalent to 100 pounds of fruit.

I'm not saying it's equivalent to 100 berries.

I'm just arbitrarily saying it is 100.

And what matters is not that this

is 100 or 1,000 or a million.

What matters is how this compares to other things.

So for example, if I-- let's say this is 100,

and if I know that I like fruit-- a pound of fruit--

20% more than that first-- Or if I like

an incremental-- my first pound of fruit-- 20% more,

then I would have to say that the marginal utility

of my first pound of fruit is 120.

And this is what we said right over here.

And if, another way to think about it

is, if the marginal utility of the second chocolate

bar I get-- because I've already enjoyed

a little bit of chocolate bar, and I'm a little chocolated

out-- is 20% less than that, then if this is 100,

then this would have to be 80.

I could have set this to be 1,000 and this

to be 800 and this to be 1,200.

I could have set this to be 10 and this

to be 8 and this to be 12.

What matters is, is that they really just

have the same ratios between them that really do

reflect my actual preferences.

So let's just think about this a little bit.

My first chocolate bar, I'm pretty excited.

I just call it 100.

The next chocolate bar, I'm a little bit less excited

about it.

I've already had some chocolate.

My craving has been satiated to some degree,

but I still like chocolate.

So I'll call that an 80.

We could call it 80 satisfaction units,

whatever you want to call it.

Then the next chocolate bar after this-- now I'm

starting to get pretty stuffed, and I'm really chocolated out.

And so I'm not getting as much benefit from it.

And then finally if you give me another chocolate bar,

it's even less.

And if we were to list a fifth chocolate bar,

I might not want it at all.

My marginal utility might go to 0 maybe

for that fifth chocolate bar.

Maybe that sixth chocolate bar, I have to somehow get rid of it

somehow, because I'm so tired of chocolate bars.

Maybe it'll have a negative marginal utility.

And we could think about the same thing with fruit.

The first pound of fruit, I'm pretty excited about fruit.

I have a fruit craving.

I like that first pound of fruit even more

than that first chocolate bar.

I like it 20% more.

So I get to 120, you could call it utility points

or whatever arbitrary unit you want to call it.

Then my next pound of fruit, once again

I'm having diminishing utility, diminishing benefit

as I get more and more incremental pounds of fruit.

Now, it's very important to realize

this is marginal utility, not total utility.

This is a utility I'm getting from each incremental pound.

It's positive, so I'm still enjoying

that next incremental pound.

I'm just enjoying it a little bit less than the pound before.

And to realize what total utility is,

if I were to have two pounds of fruit,

I would have 120 of utility from that first pound.

And then I would have 100 from the second pound.

And so you would say I had a total utility of 220,

you could call them utility units, from both pounds.

Now with just the information that I've given here,

there's a few things you could say.

You could say, well look, my first pound of fruit

I enjoy more, 20% more than my first chocolate bar.

You could also say that my second pound of fruit,

I enjoy it or I could derive about the same amount of value

as my first chocolate bar.

You could say that my second chocolate bar

I enjoy less than my first chocolate bar.

You could even say 20% less if these numbers are good.

But this still doesn't give you a lot