Diminishing Marginal Utility

Diminishing marginal utility is a fundamental concept in economics that describes the decrease in satisfaction a consumer experiences as they consume more of a good or service. It's a key principle explaining consumer behavior and demand curves.

Definition

The marginal utility of a good is the additional satisfaction a consumer gains from consuming one more unit of that good. Diminishing marginal utility states that as consumption increases, the marginal utility of each additional unit tends to decrease.

The Law of Diminishing Marginal Utility

This law is a cornerstone of microeconomics. It posits that with each additional unit of a good consumed, the extra satisfaction gained will be less than the satisfaction gained from the previous unit.

Mathematically, this can be represented as:

$$ \frac{ \Delta MU }{ \Delta Q } < \frac{ MU_i }{ Q_i } $$

Where:

• $MU$

  represents marginal utility.

• $Q$

  represents quantity consumed.

Illustrative Example

Consider a consumer eating slices of pizza:

1. The first slice provides a high level of satisfaction.
2. The second slice is still enjoyable, but perhaps not as much as the first.
3. By the fourth or fifth slice, the satisfaction gained from each additional slice is likely to be significantly lower.
4. Eventually, the consumer might even experience disutility (negative utility) if they consume too much.

Graphical Representation

Demand Curve and Diminishing Marginal Utility

Diminishing marginal utility is a primary reason why the demand curve for most goods is downward sloping. Consumers are willing to pay a higher price for the first units of a good because the marginal utility is high. As they consume more, they are only willing to pay less for each additional unit because the marginal utility is lower.

Table Illustrating Diminishing Marginal Utility

Quantity of Apples	Total Utility (TU)	Marginal Utility (MU)
0	0	-
1	10	10
2	18	8
3	24	6
4	28	4
5	30	2

Exceptions to Diminishing Marginal Utility

While diminishing marginal utility is the general rule, there can be exceptions. For example, with collectible items, the marginal utility might increase with each additional item collected, as the collector gains satisfaction from completing a set.

Importance in Economics

Understanding diminishing marginal utility is crucial for analyzing consumer behavior, market demand, and pricing strategies. It helps explain why prices are typically lower for larger quantities of a good (e.g., bulk discounts).