Explain the law of diminishing marginal utility?

Question: Explain the law of diminishing marginal utility?

The Law of Diminishing Marginal Utility is an important concept in economics that describes how the additional satisfaction (utility) a person gains from consuming one more unit of a good or service decreases with each additional unit consumed.

Key Points:

Utility: Utility refers to the satisfaction or pleasure a consumer gets from consuming a good or service.

Marginal Utility: This is the additional satisfaction gained from consuming one more unit of a good or service.

Diminishing Marginal Utility: As a consumer consumes more units of a good, the additional utility from each subsequent unit tends to decrease.

Example:

Imagine you are very thirsty and you start drinking glasses of water:

The first glass provides a significant amount of satisfaction because you were extremely thirsty.

The second glass still gives you satisfaction, but not as much as the first because your thirst is already partly quenched.

The third glass gives even less satisfaction than the second.

Eventually, a point is reached where drinking more water provides very little or no additional satisfaction, and could even become unpleasant.

Importance in Economics:

Consumer Choice: This law helps explain consumer choices and demand. As the marginal utility of a good decreases, consumers are less willing to pay the same price for additional units.

Pricing Strategies: Businesses use this concept to set prices and develop strategies such as bulk discounts to encourage consumption.

Understanding the Law of Diminishing Marginal Utility helps in analyzing consumer behavior and market dynamics, providing valuable insights for both economists and businesses.

Rjwala

Rjwala is your freely Ai Social Learning Platform. here our team solve your academic problems daily.