We have seen that even if our economy is operating efficiently, i.e. all our resources are being used and they are being used where they will have the greatest impact on output, that it is not possible to produce everything we want. We have to make choices as to which goods and services we will produce and which goods and services we will forego.
Prices play an important role in the rationing of resources.
This is the what we will now examine. Let's assume that we are looking at the market for CDs. Because they derive pleasure from listening to music. Economists use the term utility to refer to the satisfaction or pleasure that people get from consuming a good. We use the term marginal utility to refer to the additional satisfaction that people get from consuming one more unit of a good.