What is Diminishing Marginal Utility?
The law of diminishing marginal utility states that as a consumer obtains more of a good, the extra satisfaction (or utility) from each additional unit decreases. It reflects human behaviour: the first slice of pizza brings more joy than the tenth.
Diminishing marginal utility is the economic principle that each additional unit of a good consumed yields less satisfaction than the previous unit, assuming constant conditions.
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Step-by-step worked examples
A student drinks coffee. 1st cup brings 10 utils, 2nd brings 8 utils, 3rd brings 5 utils. What is the marginal utility of the 3rd cup?
MU₃ = TU₃ − TU₂ = (10+8+5) − (10+8) = 23 − 18 = 5 utils
Total utility from 4 ice creams is 20 utils. From 5 ice creams it is 23 utils. Find marginal utility of the 5th.
MU₅ = TU₅ − TU₄ = 23 − 20 = 3 utils
Marginal utility falls from 12 to 9 to 6 to 3 utils for units 1–4. At what point does MU = 0 (satiation)?
Pattern: MU decreases by 3 each time MU₅ = 0 utils Satiation (no more benefit) occurs at unit 5 or beyond
Flashcards
Quick quiz
Q1.The law of diminishing marginal utility means…
Q2.If TU goes 10→18→24→28, what is MU of the 4th unit?
Q3.Diminishing MU explains why…
Q4.At satiation point, MU…
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Common mistakes
Diminishing marginal utility means total satisfaction stops increasing. — Correct: It means the extra satisfaction per unit falls, not that total satisfaction falls.
MU is the same as average utility. — Correct: MU is the change from the last unit; average utility is total divided by quantity.
Diminishing MU applies only to cheap goods. — Correct: It is a universal tendency; even luxury goods show diminishing MU (luxury watches, yachts).
If you have negative MU, you should stop consuming. — Correct: If MU is negative, you should have stopped earlier; negative MU means earlier units were wasted.
FAQ
What is diminishing marginal utility?
The economic law that each additional unit of a good provides less satisfaction than the unit before it, given constant conditions.
Why does marginal utility diminish?
Because basic needs are met first; extra units satisfy less pressing wants or create storage/inconvenience costs.
How is marginal utility calculated?
MU = change in total utility / change in quantity = (TU_new − TU_old) / (Q_new − Q_old).
How does diminishing MU affect pricing?
It justifies downward-sloping demand curves: as quantity rises, consumers value extra units less, so they demand lower prices.