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Law Of Diminishing Marginal Utility

What is the 'Law Of Diminishing Marginal Utility'

The law of diminishing marginal utility is a law of economics stating that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product. Marginal utility is derived as the change in utility as an additional unit is consumed.

Explaining 'Law Of Diminishing Marginal Utility'

Marginal utility may decrease into negative utility, as it may become entirely unfavorable to consume another unit of any product. Therefore, the first unit of consumption for any product is typically highest, with every unit of consumption to follow holding less and less utility. Consumers handle the law of diminishing marginal utility by consuming numerous quantities of numerous goods.

Diminishing Prices

The law of diminishing marginal utility directly relates to the concept of diminishing prices. As the utility of a product decreases as its consumption increases, consumers are willing to pay smaller dollar amounts for more of the product. For example, assume an individual pays $100 for a vacuum cleaner. Because he has little value for a second vacuum cleaner, the same individual is willing to pay only $20 for a second vacuum cleaner. The law of diminishing marginal utility directly impacts a company’s pricing because the price charged for an item must correspond to the consumer’s marginal utility and willingness to consume or utilize the good.

Example of Diminishing Marginal Utility

An individual can purchase a slice of pizza for $2; she is quite hungry and decides to buy five slices of pizza. After doing so, the individual consumes the first slice of pizza and gains a certain positive utility from eating the food. Because the individual was hungry and this is the first food she consumed, the first slice of pizza has a high benefit. Upon consuming the second slice of pizza, the individual’s appetite is becoming satisfied. She wasn't as hungry as before, so the second slice of pizza had a smaller benefit and enjoyment as the first. The third slice, as before, holds even less utility as the individual is now not hungry anymore.


Further Reading


Basis of financial arithmetic from the viewpoint of the utility theory
arxiv.org [PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

A Study on Fossilization from the Perspective of the Law of Diminishing Marginal Utility <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-KJSH200902014.htm' />A Study on Fossilization from the Perspective of the Law of Diminishing Marginal Utility [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-KJSH200902014.htm'>PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

Law of Great Number and Law of Diminishing Marginal Utility in Statistic ActivityLaw of Great Number and Law of Diminishing Marginal Utility in Statistic Activity
en.cnki.com.cn [PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

The role of diminishing marginal utility in the ordinal and cardinal utility theoriesThe role of diminishing marginal utility in the ordinal and cardinal utility theories
onlinelibrary.wiley.com [PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

On Marginal Utility of Political Participation by Private Owners <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-ZYSH200202007.htm' />On Marginal Utility of Political Participation by Private Owners [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-ZYSH200202007.htm'>PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

Diminishing marginal utility and the teaching of economics: A noteDiminishing marginal utility and the teaching of economics: A note
www.econstor.eu [PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

A Research into Advertising Investment in the View of Marginal AnalysisA Research into Advertising Investment in the View of Marginal Analysis
en.cnki.com.cn [PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

Revisiting the concepts of money, profit and interest from the perspective of value and diminishing marginal utilityRevisiting the concepts of money, profit and interest from the perspective of value and diminishing marginal utility
www.jimf-bi.org [PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …

Influence of Law of Diminishing Marginal Utility on Tourism Products and its PrecautionsInfluence of Law of Diminishing Marginal Utility on Tourism Products and its Precautions
en.cnki.com.cn [PDF]
… 6. Gossen's First Law The Gossen's First Law says that the marginal wealth utility is diminishing [2]. Now let us examine the consequence of accepting the assumption that the utility function defined by (8) fulfils the law of diminishing marginal wealth utility. Then …



Q&A About Law Of Diminishing Marginal Utility


How does one derive marginal utility?

Marginal utility is derived as the change in utility as an additional unit is consumed.

How do economists measure changes in quantity demanded as price changes?

Economists measure changes in quantity demanded as price changes with demand curves .

What are some examples of goods that have diminishing marginal utility?

Some examples include food, water, and medicine. As you consume more units of these types of products, each additional unit provides less benefit than previous units did, which means there is diminishing marginal utility associated with those products.

Why does this happen?

As more units are consumed, less value for each additional unit will be received by consumers.

What is the law of diminishing marginal utility?

The law of diminishing marginal utility is a law of economics stating that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

Is it possible for someone's demand curve for something like pizza (or anything else) to become perfectly elastic at some point where he would never buy anymore even if it were free?

Yes; however this would only occur under very specific circumstances such as when an individual had already acquired all the resources necessary for survival and comfort

What is marginal utility?

Marginal utility is the change in total utility resulting from an increase in consumption by one unit.

What is the definition of utility?

Utility is the satisfaction or benefit derived from consuming a good.

Are there any exceptions to this law of diminishing marginal utility ?

Yes , there are exceptions . For example , if you have not eaten for days , your first bite would provide great pleasure even though it has low nutritional value . This could be called " positive" diminishing marginal utility since each successive bite yields less pleasure than previous bites did . The same concept applies to alcohol ; while drinking your first beer may give you great pleasure , subsequent beers may not yield as much pleasure as the first beer did . In both cases , however, we assume

What happens to marginal utilities when more units are consumed?

There is a decline in the marginal utilities.

How does utility differ from consumption?

Consumption refers to the act of using up a good, whereas utility refers to how much satisfaction or benefit one gets from consuming that good.

What are two ways that people can consume goods and services?

People can consume goods and services either by purchasing them or by producing them themselves.