Law Of Diminishing Marginal Utility


DEFINITION of 'Law Of Diminishing Marginal Utility'

The Law Of Diminishing Marginal Utility is a law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.


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BREAKING DOWN 'Law Of Diminishing Marginal Utility'

This is the premise on which buffet-style restaurants operate. They entice you with "all you can eat," all the while knowing each additional plate of food provides less utility than the one before. And despite their enticement, most people will eat only until the utility they derive from additional food is slightly lower than the original.

For example, say you go to a buffet and the first plate of food you eat is very good. On a scale of ten you would give it a ten. Now your hunger has been somewhat tamed, but you get another full plate of food. Since you're not as hungry, your enjoyment rates at a seven at best. Most people would stop before their utility drops even more, but say you go back to eat a third full plate of food and your utility drops even more to a three. If you kept eating, you would eventually reach a point at which your eating makes you sick, providing dissatisfaction, or 'dis-utility'.

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  1. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  2. What are the different ways that utility is measured in economics?

    It's difficult to measure a qualitative concept such as utility, but economists try to quantify it in two different ways: ... Read Full Answer >>
  3. What are the arguments against using ceteris paribus assumptions in economics?

    Ceteris paribus assumptions are at the heart of nearly all mainstream microeconomic and macroeconomic models. Even so, some ... Read Full Answer >>
  4. What is the concept of utility in microeconomics?

    Utility is a loose and controversial topic in microeconomics. Generally speaking, utility refers to the degree of removed ... Read Full Answer >>
  5. How do businesses calculate their marginal utility?

    Strictly speaking, businesses do not experience marginal utility like individuals do. Companies are made up of people, and ... Read Full Answer >>
  6. What does the law of diminishing marginal utility explain?

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