Law of Diminishing Marginal Utility
Law of Diminishing Marginal Utility Meaning:
The marginal utility of a good or service is the change in utility (that is, satisfaction) that comes with an increase or decrease in the amount available of that good or service. The law of diminishing marginal utility says that beyond the first, the availability of one more unit of a good or service will normally return less utility than the one before.
The marginal utility of a good or service is the change in utility (that is, satisfaction) that comes with an increase or decrease in the amount available of that good or service. The law of diminishing marginal utility says that beyond the first, the availability of one more unit of a good or service will normally return less utility than the one before.
Consider water. A rational person will use the first unit of water that they are able to access to quench their thirst, and they will get a huge amount of utility in doing so. After that however, water that is surplus to drinking requirements will used in ways that return rapidly decreasing amount of utility: keeping plants and animals alive; cooking; cleaning; pool; ornamental fountains, and so on.