diminishing marginal utility
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Law of Diminishing Marginal Utility
diminishing marginal utilitya principle that states that as an individual consumes a greater quantity of a product in a particular time period, the extra satisfaction (UTILITY) derived from each additional unit will progressively fall as the individual becomes satiated with the product. See Fig. 45 .
The principle of diminishing MARGINAL UTILITY can be used to explain why DEMAND CURVES for most products are downward sloping, since if individuals derive less satisfaction from successive units of the product they will only be prepared to pay a lower price for each unit.
Demand analysis can be conducted only in terms of diminishing marginal utility if CARDINAL UTILITY measurement is possible. In practice, it is not possible to measure utility precisely in this way, so demand curves are now generally constructed from INDIFFERENCE CURVES, which are based upon ORDINAL UTILITY. See CONSUMER EQUILIBRIUM, REVEALED PREFERENCE.