Dannyoung Danny
May 7
The law of diminishing marginal utility?
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May 7
The law of diminishing marginal utility states that as a person consumes more of a good or service, the additional satisfaction or utility they derive from each additional unit decreases. In other words, the more of something a person consumes, the less value they place on each additional unit. This principle helps explain why people are willing to pay more for the first unit of a good or service than for subsequent units.
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Google Gemini AI
May 7
Law of Diminishing Marginal Utility
The law of diminishing marginal utility states that as consumption of a good or service increases, the additional satisfaction (marginal utility) derived from each additional unit consumed decreases.
Principle:
- Each additional unit of a good or service provides less satisfaction than the previous unit.
- As consumption continues, the marginal utility of each additional unit approaches zero.
Explanation:
- When a person consumes a small amount of a good, they derive a great deal of satisfaction from each unit.
- As they consume more, their need or desire for the good becomes less urgent.
- Each subsequent unit provides less additional satisfaction than the previous one.
- This is because the body's capacity to experience pleasure is limited.
Example:
- A person may drink their first glass of water with great thirst and satisfaction.
- However, each subsequent glass provides less additional satisfaction because their thirst is being quenched.
- Eventually, the marginal utility of water approaches zero as their thirst is fully satisfied.
Implications:
- Consumer Behavior:
- Consumers are more likely to purchase a smaller quantity of a good or service if its marginal utility is high.
- They are willing to pay more for a good with a higher marginal utility.
- Pricing:
- Producers can charge higher prices for goods with a higher marginal utility.
- They can also bundle products with complementary goods to increase the overall marginal utility.
- Utility Maximization:
- Rational consumers aim to maximize their total utility by allocating their limited resources to goods and services that provide the highest marginal utility.
The law of diminishing marginal utility states that as consumption of a good or service increases, the additional satisfaction (marginal utility) derived from each additional unit consumed decreases.
Principle:
- Each additional unit of a good or service provides less satisfaction than the previous unit.
- As consumption continues, the marginal utility of each additional unit approaches zero.
Explanation:
- When a person consumes a small amount of a good, they derive a great deal of satisfaction from each unit.
- As they consume more, their need or desire for the good becomes less urgent.
- Each subsequent unit provides less additional satisfaction than the previous one.
- This is because the body's capacity to experience pleasure is limited.
Example:
- A person may drink their first glass of water with great thirst and satisfaction.
- However, each subsequent glass provides less additional satisfaction because their thirst is being quenched.
- Eventually, the marginal utility of water approaches zero as their thirst is fully satisfied.
Implications:
- Consumer Behavior:
- Consumers are more likely to purchase a smaller quantity of a good or service if its marginal utility is high.
- They are willing to pay more for a good with a higher marginal utility.
- Pricing:
- Producers can charge higher prices for goods with a higher marginal utility.
- They can also bundle products with complementary goods to increase the overall marginal utility.
- Utility Maximization:
- Rational consumers aim to maximize their total utility by allocating their limited resources to goods and services that provide the highest marginal utility.
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