Law of Diminishing Marginal Utility - Supply Analysis, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

at times the vocabulary associated with
economics can seem very intimidating and
sometimes a textbook explanation of
concepts involved in economics doesn't
quite break down the ideas into easy to
digest information for the average
student I know that individuals respond
differently to different methods of
learning but I voiced found a concept
easier to understand when explained with
visual aids utilizing familiar ideas the
law of diminishing marginal utility can
seem quite complicated given the
horrendous length of this term but I
assure you it is a relatively simple
concept once you break it down here is a
textbook definition a second explanation
of the downward curve is that although
consumer wants in general may be
insatiable once for particular
commodities can be satisfied in a
specific span of time over which
consumers tastes remain unchanged
consumers can get as much of a
particular good or service as they can
afford but the more of the product they
obtain the less they still want more of
it now I know I can't speak for everyone
but I'd imagine you were about this
interested in that last slide here is an
explanation that I find easier to digest
I'll explain it with soda
aka pop coke or whatever you prefer to
refer to it as but it applies to
multitudes of other products we
consumers consume I like Coke when I pop
the top and begin to consume a can of
coke I find it really satisfying now
here's how this plays into the law of
diminishing marginal utility if I were
to rate the amount of satisfaction or as
its referred to an economics utility of
that first kind of coke on a scale of
one to ten I would of course give it a
ten and at this point I feel awesome now
here is where the diminishing part comes
into play as I consume additional cans
of coke my satisfaction / utility rating
changes I get less use out of each
successive can here's how my ratings
would typically go on the second can of
soda I'm still getting enjoyment out of
it but it's definitely not as satisfying
as the first can I give it an 8
soda addict that I am I
we'll probably enjoy 1/3 yen but having
already drink to the 3rd falls shorter
still of that initial satisfaction so
I'll give it a 6
whenever I have access to an unlimited
amount of coke I tend to be a bit
foolish so I might even partake of 1/4
can by this time my reading has taken a
pretty sharp drop the 4th can does not
make me feel nearly as good my rating
has dropped down to a 3 and so it goes
if I were to partake of a 5th can and
get next to no satisfaction out of it
the fifth can gets a 1 by the 6th can
I'd most likely be feeling sick I'm
worse off than I was prior to consuming
any coke at all my rating is now
negative making sense
now a chart here on the Left we have the
quantity of coke consumed in the next
column is the amount of utility each
coke added to my total utility shown on
the right
optimum utility or satisfaction is
reached right before my marginal utility
drops below zero okay now that your
hopefully on board with you here how
does this apply to economics why do we
care the decrease seen with each
successive unit of a product limits the
demand for a particular product this is
why when graphed demand slopes downward
if we assume the average consumer
behaves rationally then the consumer
will only buy amounts of a particular
product that would be useful to them
even as supply is unlimited you may not
use the same terms to describe the
phenomenon of diminishing marginal
utility
but it's the concept the average
consumer takes into consideration when
they make purchases we try not to buy
more than we can happily use we strive
to get the most utility possible if you
buy more than you can use you've wasted
a portion of your already limited income
that could have gone towards another
more useful product increasing your
overall utility in satisfaction and
because everything in economics requires
an evaluation of elasticity here's how
it released elasticity if marginal
utility while sharply as successive
units are consumed demand is predicted
to be inelastic that is price must fall
a relatively large amount before
consumers will buy more of an item
well folks this sums up the law
diminishing marginal utility our
conclusion is whether you're an
economist or just the average consumer
it matters and one more thing thank you
for your attention