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Law Of Diminishing Marginal Utility
Table of Contents
What is Diminishing Marginal Utility?
The Law Of Diminishing Marginal Utility states that all else equal as consumption increases the marginal utility. It is derived from each additional unit decline. The Marginal utility is derived as the change in utility as an additional unit that is consumed. Utility is an economic term that is used to represent satisfaction or happiness. Marginal utility is the relating to an increase in utility. That results from the consumption of one additional unit.
Understanding the Law
The 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 in holding less and less utility. Consumers handle the law of diminishing marginal utility. By consuming numerous quantities of more goods.
The Diminishing Prices
The Law of Diminishing Marginal Utility is directly related to the concept of diminishing prices. As the utility of a product also decreases. As its consumption increases. Consumers are willing to pay smaller dollar amounts for more of the product. For example, if 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 affects a company’s pricing. Because the price charged for an item must correspond to the consumer’s marginal utility. The willingness to consume or utilize the good.
The Example of Diminishing 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 person consumes the first slice of pizza. He gains a certain positive utility from eating the food. Because the individual was hungry and this is the first food that 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 was not as hungry as before. So the second slice of pizza had a smaller benefit and enjoyment. As the first and the third slice, before she holds even less utility. So the individual is now not hungry anymore.
Diminishing Marginal Utility
In fact, the fourth slice of pizza has experienced a diminished marginal utility as well. As it is difficult to be consumed because the individual experiences discomfort upon being full of food. Finally, the fifth slice of pizza cannot even be consumed. The individual is so full from the first four slices.
That is consuming the last slice of pizza which is results in negative utility. The five slices of pizza give a practical exhibition. The decreasing utility is experienced upon the consumption of any good. In a business application, a company may benefit from having three accountants on its staff. However, if there is no need for another accountant. Who is hiring a fourth accountant that results in a diminished utility? As the little benefit is gained from the new hire.
So, this is the important information on the topic of the Law Of Diminishing Marginal Utility. Here I have mentioned the Meaning, Understanding, and also the Diminishing Utility.
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