The law of marginal utility, though we may not be conscious of the fact, is closely related to many of our everyday acts and to many of our comparisons of values. Usually, for example, when we purchase a pair of shoes, we could, if we cared to do so, purchase a second pair exactly like the first. Our reason for not purchasing the additional pair is that the use to which we could put any one of the two pairs will yield less satisfaction than we can get from the same amount of money spent for some other good, say a hat. We will, however, purchase the second pair if the merchant reduces the price sufficiently to meet the satisfaction which we estimate a second pair of shoes would give us. Practically all of the buying in quantities of consumable goods is governed more or less by this law.

In making comparisons of the values of certain goods we often fail to arrive at correct conclusions because we ignore the law of marginal utility. Suppose the question were asked: Which is the more valuable, gold or iron? diamonds or bread? perfume or water? Obviously, bread and water are necessary to sustain life, while modern civilization is built on iron. Yet water is usually free for the taking, while bread and iron are among the cheapest of staple goods. To clear the way for a correct answer we must first contrast the marginal utility of a good with its total utility. The marginal utility of gold is much greater than the marginal utility of iron; that is, the loss of a unit of gold would be more keenly felt than the loss of a similar unit of iron. The total utility of iron, however, is much greater than the total utility of gold. Perhaps the matter will be clearer if instead of gold and iron we consider perfume and water. We use water in a great variety of ways, some of which yield satisfactions of a very low degree. On the other hand, the poorest use to which we put perfume is likely to yield a relatively high satisfaction. For this reason the marginal utility of perfume is greater than the marginal utility of water. We must, however, keep clearly in mind the fact that the total utility of water is greater than the total utility of perfume, for without the former we would find it impossible to sustain life itself. While the latter we could forego entirely with no serious effect other than a comparatively few people being inconvenienced.

The relation of marginal utility of water to its total utility is shown graphically in Fig. 2. The incompleted rectangle A, which we will leave open at the top since few if any would be willing to set a value on their own lives, represents the greatest satisfaction an individual can get from the consumption of water. Rectangle B represents the satisfaction derived when a second unit of water is put to a less important use, say in cooking, while rectangles C to M represent decreasing satisfactions resulting from decreasingly important uses. Since water is practically a free good we can assume that the height of M is zero. In this case the marginal utility of water would be zero while its total utility would be infinitely great.

We may now properly consider the relation between the marginal utility and the total utility of a good which is neither necessary to sustain life nor free for the using. A good example is dining-room chairs. Obviously, as was the case in the earliest frontier homes, any American family could do entirely without the use of chairs in the dining-room. We will assume, however, that common decency demands two chairs, each yielding exactly the same satisfaction, represented in Fig. 3 by rectangles A and

Fig. 2.

B. A third chair (C) may also be desired, though it would yield less satisfaction than the first or second. Even a fourth (D), fifth (E), and sixth (F) can be used occasionally to advantage.

The marginal utility of the six chairs is represented by the rectangle F. The total utility of the six is found not by multiplying the rectangle F by six, but by adding all the rectangles.