1. Meaning of the Law
The Law of Diminishing Marginal Utility (DMU) is a fundamental
principle in economics that describes how the satisfaction (utility) a
consumer derives from consuming additional units of a good declines as
they consume more units of that good, keeping other factors constant.
In simpler terms:
“As a person consumes more units of a commodity, the marginal utility (extra
satisfaction) derived from each additional unit decreases, after a certain
point.”
2. Key Terms
Utility: The satisfaction or pleasure a consumer gets from consuming
a good or service.
Total Utility (TU): The total satisfaction obtained from consuming a
given quantity of a good.
Marginal Utility (MU): The additional satisfaction gained from
consuming one more unit of a good.
MU =Change in Total Utility (ΔTU)/Change in Quantity (ΔQ)
3. The Law Stated Formally
According to Alfred Marshall, who popularized the concept:
“The additional benefit which a person derives from a given increase in the
stock of a thing diminishes with every increase in the stock that he already
has.”
So, as consumption increases, MU decreases, even though TU may still be
increasing at a decreasing rate.
4. Example
Imagine you are very thirsty and start drinking glasses of water:
The Law of Diminishing Marginal Utility (DMU) is a fundamental
principle in economics that describes how the satisfaction (utility) a
consumer derives from consuming additional units of a good declines as
they consume more units of that good, keeping other factors constant.
In simpler terms:
“As a person consumes more units of a commodity, the marginal utility (extra
satisfaction) derived from each additional unit decreases, after a certain
point.”
2. Key Terms
Utility: The satisfaction or pleasure a consumer gets from consuming
a good or service.
Total Utility (TU): The total satisfaction obtained from consuming a
given quantity of a good.
Marginal Utility (MU): The additional satisfaction gained from
consuming one more unit of a good.
MU =Change in Total Utility (ΔTU)/Change in Quantity (ΔQ)
3. The Law Stated Formally
According to Alfred Marshall, who popularized the concept:
“The additional benefit which a person derives from a given increase in the
stock of a thing diminishes with every increase in the stock that he already
has.”
So, as consumption increases, MU decreases, even though TU may still be
increasing at a decreasing rate.
4. Example
Imagine you are very thirsty and start drinking glasses of water:
