| If Crusoe already has four horses, then they will be allocated to his four most valued uses. A fifth horse will therefore be useful only for the relatively low-priority goal of providing horse meat. Thus as his stock of horses grows larger and larger, each successive horse becomes less useful to him. The utility of each such increment (or decrement) is known as marginal utility. Clearly, the marginal utility of horses decreases as Crusoe's stock increases.
Now suppose that Crusoe has five horses and must give one up. In order to maximize his utility, he will deal with this loss by forgoing 100 pounds of horse meat—a benefit of relatively less importance to him. Yet if his stock dwindles to a single horse and he is faced with the necessity of losing it, that loss will cost him his highest-ranked benefit of transportation. In other words, as his stock grows smaller, each successive horse acquires greater marginal utility to him.  |
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Crusoe
 transportation
pulling a cart
pulling a plow
enjoyment as a pet
100 pounds of horse meat
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