Law of Diminishing Marginal Utility
Utility is a term that refers to level of satisfaction an individual gets after consumption of a specific product. Marginal utility refers to the addition that is made to the total utility which is what one gets when they consume an additional unit. The wants of an individual are often limited in number yet, the wants are satiable.
Precisely because of this reason, the more individuals have of a commodity, the less they desire to have more of the same. The law of diminishing marginal utility therefore states that as the amount of commodity consumed increases, the utility that is derived by that consumer from any additional units’ decreases.
In other words, the law of diminishing marginal utility can be described as the psychological overview that perceived satisfaction or value gained from a good or product to consumers’ declines with every additional unit that is consumed or acquired. For instance, even the most delicious and favorite food will appeal to the consumer less and less if they have had enough.
This law goes a long way to help explain negative slope of the demand curve as well as law of demand. It means that the value of any good and extra utility that is derived from it declines the more that good is consumed. The end result of this is the fact that it has a direct bearing on market demand, law of demand and the demand price. If satisfaction derived from a product or good declines, buyers are then willing to pay a price that is lower as such demand price is directly related to the quantity demanded. There are a couple of assumptions that come into play when analyzing the law of diminishing marginal utility. These include the following:
- All units of the commodity must be similar in al regards
- The unit of the product or good should be standard.
- During the consumption process, there should not be any changes in taste
- Continuity in consumption must be present
- The cost of substitute goods should not change
It is important to note there are exceptions to this law and they include rare things and hobbies, music and liquor, things of display and money.
Economists recognize there are factors that exist which cause the demand curve to shift as a result of law of diminishing marginal utility. Changes that can lead to this shift include consumer preferences or tastes, income, price of complementary and substitution goods. Such factors can cause the curve to shift in either one direction or another.
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