diminishing marginal utility


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Law of Diminishing Marginal Utility

In economics, the theory that for each additional unit of a product an individual consumes, the less utility or satisfaction the person derives from it. This is important to determining how much supply of a product the market can handle without diminishing demand. Historically, it has been thought that one can quantify the marginal utility of each unit, but some economists disagree with this. See also: Austrian school.
Diminishing marginal utilityclick for a larger image
Fig. 45 Diminishing marginal utility. To a hungry man the utility of the first slice of bread consumed will be high (Oa) but as his appetite becomes satiated, successive slices of bread yield smaller and smaller amounts of satisfaction; for example, the fifth slice of bread yields only Ob of additional utility.

diminishing marginal utility

a 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.

References in periodicals archive ?
The methodological basis of the argument if applied to the existence of diminishing marginal utility of one rational individual is relatively uncontroversial, but if applied to a group and/or society, there are long-recognized and unsolved issues of allowing interpersonal comparisons of utility, and these issues are even compounded in the intertemporal and/or intergenerational context.
Certainly it is difficult to take happiness research and experiments on loss aversion seriously while remaining convinced that diminishing marginal utility of income provides a solid justification for government transfers.
Assume that U(M, S, X), is additive: [U.sub.MS] = [U.sub.MX] = [U.sub.SX] = 0.(4) Assume also that M and X are subject to diminishing marginal utility: [U.sub.MM], [U.sub.XX] [less than] 0.
He devised a theory of interest and profit--which the authors also overlook, but surely of signal relevance to investors--based upon the interaction of diminishing marginal utility with diminishing marginal productivity of time (and of time preference).
Diminishing marginal utility implies that cov [1+[rho], [U.sub.C1]] is negative if the profit rate and consumption are positively correlated.
Here Beetle expresses the economic notion of diminishing marginal utility as it relates to snow.
Under diminishing marginal utility of income, part of any exogenous change in one group's income should be shared with the other group.
The Law of Diminishing Marginal Utility applies specifically to commodities which are purely homogeneous in both space and time.
With diminishing marginal utility for the ants receiving food, nest condition becomes relatively more important than food (their environment has changed) and some of these ants will turn to nest repair.
If there is diminishing marginal utility in both M and Y and [Mathematical Expression Omitted] is quasiconcave in M and Y, then [WTP.sup.c] will be concave:
Note, for example, how Miller's seventh edition text proceeds to use the concept of the margin to present the principle of diminishing marginal utility:
391-393) insisted on the importance of wants (as a part of economic plans) for the theory of diminishing marginal utility and ultimately for the subjective value.