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CandleFocus Glossary Editor
The law of diminishing marginal utility is an important concept in economics that states that as more and more of a good or service is consumed, the marginal utility (the additional satisfaction obtained from consuming an additional unit of the good or service) decreases. This law is used to explain why people sometimes purchase more of a good or service than they initially intended.
When it comes to utilities like food, shelter, and clothing, the law of diminishing marginal utility explains why people tend to buy fewer of these goods and services as they gain more of them. This is because as they increase their ownership of these utilities, there is less additional utility to be gained from acquiring more of them. For example, an individual may purchase two meals a day. After the first meal has been eaten, the additional satisfaction gained from the second meal decreases. Thus, the individual will not purchase a third meal as the benefit gained from it will be far less than the first two meals.
The law of diminishing marginal utility is also applied to other economic instances, such as the decrease in marginal return on investments. When an investor puts money into an investment, they can only receive the same return on each additional unit they invest. This is because the additional return gained from the invested amount decreases as more is invested.
The law of diminishing marginal utility is a reminder to make sound decisions when consuming goods and services. People should take into account the amount of satisfaction they are expecting to receive when making a purchase, as the utility received from each unit of the good or service will decrease as more of it is consumed. The law of diminishing marginal utility also explains why people will sometimes purchase more of a good or service than they initially intended.
In conclusion, the law of diminishing marginal utility is an important concept in economics that explains why people sometimes purchase more of a good or service than they initially intended and why people will buy fewer of certain goods as they gain more of them. This law also explains why the marginal return on investments decreases as more is invested. All in all, it is important to take this law into account when trying to make wise decisions about consumption and investments.
When it comes to utilities like food, shelter, and clothing, the law of diminishing marginal utility explains why people tend to buy fewer of these goods and services as they gain more of them. This is because as they increase their ownership of these utilities, there is less additional utility to be gained from acquiring more of them. For example, an individual may purchase two meals a day. After the first meal has been eaten, the additional satisfaction gained from the second meal decreases. Thus, the individual will not purchase a third meal as the benefit gained from it will be far less than the first two meals.
The law of diminishing marginal utility is also applied to other economic instances, such as the decrease in marginal return on investments. When an investor puts money into an investment, they can only receive the same return on each additional unit they invest. This is because the additional return gained from the invested amount decreases as more is invested.
The law of diminishing marginal utility is a reminder to make sound decisions when consuming goods and services. People should take into account the amount of satisfaction they are expecting to receive when making a purchase, as the utility received from each unit of the good or service will decrease as more of it is consumed. The law of diminishing marginal utility also explains why people will sometimes purchase more of a good or service than they initially intended.
In conclusion, the law of diminishing marginal utility is an important concept in economics that explains why people sometimes purchase more of a good or service than they initially intended and why people will buy fewer of certain goods as they gain more of them. This law also explains why the marginal return on investments decreases as more is invested. All in all, it is important to take this law into account when trying to make wise decisions about consumption and investments.