A marginal consumer is the consumer who is least willing to pay the market price in a typical supply and demand equilibrium. This consumer represents the threshold point in the market where purchasing decisions are most sensitive to price changes. When prices increase, the marginal consumer is the first to stop purchasing the product, and conversely, when prices decrease, this consumer is the first to increase their purchasing behaviour.
Understanding the marginal consumer is essential for economic analysis and particularly relevant in consequential Life Cycle Assessment. In a market equilibrium, consumers can be ranked according to their willingness to pay for a product, from those with the highest willingness to pay down to those with the lowest. The marginal consumer sits at the boundary where the market price exactly matches their maximum willingness to pay. Any consumer with a higher willingness to pay will purchase the product and gain consumer surplus, whilst any consumer with a lower willingness to pay will not participate in the market.
The concept of the marginal consumer is directly related to the demand curve. As we move along the demand curve, the marginal consumer changes. At higher prices, only consumers with high willingness to pay remain in the market, whilst at lower prices, consumers with progressively lower willingness to pay enter the market. The marginal consumer at any given price point determines the quantity demanded.
This concept becomes particularly important when assessing the consequences of changes in product supply or demand. When evaluating the environmental impacts of increasing production of a product, the relevant question is which additional consumers will be served by that increased production. These new consumers are, by definition, marginal consumers who were previously priced out of the market or chose not to purchase at the prevailing price. Understanding their consumption patterns, usage behaviours, and the products they might have consumed instead is crucial for accurate consequential modelling.
In consequential LCA, identifying the marginal consumer helps determine which alternative products or activities are displaced when a new product enters the market or when existing production increases. The marginal consumer's behaviour defines the baseline against which environmental consequences should be assessed.
