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marginal utility of money

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The amount by which an individual's utility would be increased if given a small quantity of additional money, per unit of the increase. Additional money can increase utility in two ways. First, it is an addition to the wealth that a consumer can allocate to consumption. The marginal utility of money is then derived through the additional consumption it finances. Second, some models of money demand assume that consumers derive utility directly from holding money. The quantity of money held then enters as an argument of the utility function and the marginal utility of money arises from an increase in this argument.

Subjects: Social sciencesEconomics

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