Law Of Diminishing Marginal Utility
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 the incremental increase in utility that results from the consumption of one additional unit. "Utility" is an economic term used to represent satisfaction or happiness.In simple terms, the law of diminishing marginal utility means that the more of an item that you use or consume, the less satisfaction you get from each additional unit consumed or used.
Law of Diminishing Marginal Utility
Definition
The Law of Diminishing Marginal Utility states that, all else being equal, as consumption increases, the marginal utility derived from each additional unit decreases. Marginal utility refers to the additional satisfaction or pleasure gained from consuming one more unit of a good or service. In simple terms, the more of something you consume, the less satisfaction you get from each additional unit.
Origin
The concept of the Law of Diminishing Marginal Utility was first introduced by 19th-century economists such as William Stanley Jevons and Carl Menger. They discovered this principle through the study of consumer behavior and established it as a fundamental concept in microeconomics.
Categories and Characteristics
The Law of Diminishing Marginal Utility can be applied to various goods and services. Its main characteristics include:
- Universality: It applies to almost all goods and services.
- Diminishing Nature: As the quantity consumed increases, the marginal utility decreases.
- Subjectivity: Utility is subjective, and the rate of diminishing marginal utility may vary among individuals.
Specific Cases
Case 1: Suppose you love eating chocolate. The first piece of chocolate you eat might bring you immense satisfaction. However, by the time you eat the fifth piece, your satisfaction might significantly decrease, and you might even feel sick of it. This is a classic example of diminishing marginal utility.
Case 2: In the investment field, suppose you invest in a particular stock. The initial investment might bring high returns and satisfaction. However, as you continue to increase your investment, the marginal returns might gradually decrease, and you might face higher risks and lower returns.
Common Questions
Question 1: Why does marginal utility diminish?
Answer: Because people's demand for a particular good or service tends to saturate after a certain point, additional consumption naturally brings less satisfaction.
Question 2: Are there exceptions to the Law of Diminishing Marginal Utility?
Answer: In some special cases, such as collectibles or certain luxury items, marginal utility might not diminish significantly, but these cases are relatively rare.
