Marginal utility
An individual will typically be able to partially order the potential uses of a good or service. For example, a ration of water might be used to sustain oneself, a dog, or a rose bush. Say that a given person gives her own sustenance highest priority, that of the dog next highest priority, and lowest priority to saving the roses. In that case, if the individual has two rations of water, then the marginal utility of either of those rations is that of sustaining the dog. The marginal utility of a third gallon would be that of watering the roses.
(The diminishing of utility should not necessarily be taken to be itself an arithmetic subtraction. It may be no more than a purely ordinal change.
The notion that marginal utilities are diminishing across the ranges relevant to decision-making is called "the law of diminishing marginal utility" (and also known as a "Gossen's First Law"). However, it will not always hold. The case of the person, dog, and roses is one in which potential uses operate independently - there is no complementarity across the three uses. Sometimes an amount added brings things past a desired tipping point, or an amount subtracted causes them to fall short. In such cases, the marginal utility of a good or service might actually be increasing.
(The diminishing of utility should not necessarily be taken to be itself an arithmetic subtraction. It may be no more than a purely ordinal change.
The notion that marginal utilities are diminishing across the ranges relevant to decision-making is called "the law of diminishing marginal utility" (and also known as a "Gossen's First Law"). However, it will not always hold. The case of the person, dog, and roses is one in which potential uses operate independently - there is no complementarity across the three uses. Sometimes an amount added brings things past a desired tipping point, or an amount subtracted causes them to fall short. In such cases, the marginal utility of a good or service might actually be increasing.