Why your second cup of coffee never feels as good as the first

Every purchase you make involves a hidden calculation of satisfaction. This video explains how economists use the concept of marginal utility to understand why we make the choices we do, and why the value of an extra unit of anything eventually begins to decline.

Economists define utility as the satisfaction or happiness gained from consuming a good or using your time. When you decide to buy an additional unit of something, you are thinking at the margin. The extra satisfaction gained from that specific unit is known as marginal utility.

The principle of diminishing marginal utility explains why the first shot of morning espresso provides more satisfaction than the third or fourth. As you consume more, each additional unit yields less utility until the cost eventually outweighs the benefit. While this concept applies to all goods, individual preferences and income levels mean that a price change—such as a discount on espresso—will influence different consumers in unique ways.

Source: Introduction to Consumer Choice