In behavioural economics, the concept of marginal utility is used to understand and predict consumer behaviour, often challenging traditional assumptions about rationality and utility maximisation. Behavioural economists study how psychological, cognitive, emotional, cultural, and social factors influence economic decisions, including the perceived utility from consuming goods or services. They explore how real-life decision-making often deviates from the standard economic theory that assumes rational, utility-maximising behaviour. For example, behavioural economics might examine how consumers' decisions are impacted by biases, heuristics, and framing effects, which can lead to choices that do not align with maximising marginal utility. It also looks into phenomena like the endowment effect, where individuals value a good more highly once their ownership of the good has been established, affecting their perception of utility. Therefore, while traditional economics uses marginal utility in a more straightforward, quantifiable way, behavioural economics applies it in a more nuanced manner to account for the complexity of human behaviour.

Diminishing marginal utility significantly influences consumer choice theory, which seeks to understand how consumers decide to allocate their resources among various goods and services. According to this concept, as a consumer consumes more units of a particular good, the satisfaction or utility gained from each additional unit decreases. This principle guides consumers to distribute their spending across different goods to maximise their total utility. For example, a consumer may choose to buy fewer units of a good as the utility gained from each additional unit decreases, and instead allocate their budget to other goods where the marginal utility is higher. This behaviour leads to the equi-marginal principle, where consumers balance the marginal utility per unit of expenditure across all goods to achieve optimal satisfaction. Thus, diminishing marginal utility is crucial in determining how consumers spread their expenditure and in understanding the overall patterns of demand in an economy.

External factors like economic conditions or marketing strategies can significantly influence the relationship between marginal utility and demand. In varying economic conditions, consumers’ perception of value and utility from goods can shift. For instance, during a recession, the marginal utility of certain luxury goods might decrease as consumers prioritise essential items, leading to a decline in demand for non-essential goods. Conversely, in a booming economy, consumers might perceive higher utility in luxury or non-essential goods, increasing their demand. Marketing and advertising also play a crucial role. Effective marketing can enhance the perceived utility of a product, leading to an increase in demand even if the product's inherent properties remain unchanged. Marketing can create an illusion of higher marginal utility by associating products with status, lifestyle, or emotional benefits, influencing consumer choices and demand patterns. Thus, these external factors can modify consumers' utility perceptions, thereby impacting demand independently of the product's intrinsic qualities.

While the concept of diminishing marginal utility is a fundamental principle in economics, it does not uniformly apply to all types of goods and services. For many common goods, such as food items or standard consumer products, diminishing marginal utility is evident - as a person consumes more of these goods, the satisfaction from each additional unit tends to decrease. However, there are exceptions. For instance, in the case of certain luxury goods or unique experiences, marginal utility might not diminish and could even increase for a while, due to the rarity or prestige associated with the product. Additionally, in the case of 'Giffen goods', where goods see an increase in demand as the price rises (contrary to the law of demand), marginal utility might behave differently. Therefore, while diminishing marginal utility is a widely applicable concept, its specific application can vary depending on the nature of the goods or services in question.

Marginal utility (MU) and consumer surplus are closely linked concepts in economics. Consumer surplus is the difference between the total amount consumers are willing to pay for a good or service and the total amount they actually pay. Marginal utility plays a critical role in determining this willingness to pay. In a typical scenario, a consumer's willingness to pay for a product is equivalent to the MU derived from the last unit consumed. As MU diminishes with each additional unit consumed, the willingness to pay decreases. Thus, the area under the demand curve (representing willingness to pay) and above the market price illustrates the consumer surplus. This surplus essentially reflects the extra utility or satisfaction consumers receive over what they pay. Therefore, understanding MU helps in quantifying consumer surplus and illustrates the economic benefit consumers receive from market transactions.