What is law of diminishing marginal utility ?

Question

Answer

The Law Of Diminishing Marginal Utility states that all else equal as consumption increases the marginal utility derived from each additional unit declines. Marginal utility is derived as the change in

utility

https://www.investopedia.com/terms/u/utility.asp

as an additional unit is consumed. Utility is an economic term used to represent satisfaction or happiness. Marginal utility is the incremental increase in utility that results from consumption of one additional unit.

Answer

The additional benefit which the consumer derives goes on diminishing with every increase in the stock that he already has.

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Intensity of desire for a commodity tends to decrease as more and more standard units of a commodity are consumed at a point of time. This law is called law of diminishing marginal utility.
It is also called 'Fundamental Law of Satisfaction' or 'Fundamental Psychological Law '.

Answer

The Law of Diminishing Marginal Utility

The law of diminishing marginal utility is an economic principle that states as a person consumes more and more units of a good or service, the satisfaction or utility derived from each additional unit decreases. In other words, the more you consume of a particular good or service, the less satisfaction or enjoyment you derive from it.

Explanation

The law of diminishing marginal utility is based on the premise that human wants are insatiable but resources are limited. This means that as individuals consume more of a particular good or service, the additional units provide less and less satisfaction, leading to a decrease in marginal utility.

Key Points

The law of diminishing marginal utility can be explained through the following key points:

1. Utility and Marginal Utility: Utility refers to the satisfaction or pleasure derived from consuming a good or service. Marginal utility, on the other hand, refers to the additional utility gained from consuming one more unit of a good or service.

2. Diminishing Marginal Utility: The law states that as more units of a good or service are consumed, the marginal utility derived from each additional unit decreases. For example, if you are hungry and eat a slice of pizza, the first slice provides a high level of satisfaction. However, as you continue eating more slices, the satisfaction derived from each additional slice decreases.

3. Consumer Behavior: The law of diminishing marginal utility plays a crucial role in understanding consumer behavior. Consumers tend to allocate their limited resources to maximize their overall satisfaction. This means that they will continue consuming a good or service until the marginal utility becomes equal to the price or until the marginal utility diminishes to a point where it is no longer worth the cost.

4. Optimal Consumption: The law of diminishing marginal utility helps explain why consumers diversify their consumption. By consuming a variety of goods and services, individuals can maximize their overall satisfaction as the marginal utility of one good diminishes, they can turn to another good with a higher marginal utility.

5. Exceptions: While the law of diminishing marginal utility generally holds true, there are some exceptions. Certain goods or services, such as addictive substances or rare collectibles, may not follow the law due to unique psychological or market factors.

In conclusion, the law of diminishing marginal utility is an essential concept in economics. It explains how the satisfaction or utility derived from consuming additional units of a good or service decreases over time. Understanding this principle helps individuals and businesses make rational decisions regarding consumption and resource allocation.

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