19 Jun 2022


The Diminishing Marginal Utility

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Diminishing marginal utility is a vital consumption law based on the fundamental human experience and behaviour. It elaborates that the marginal utility declines as a person consume more units of such a product; thus, the additional satisfaction derived from the product continues to diminish (Kanev & Terziev, 2017). The law applies to most consumer goods like durable and non-durable products. It explains the economic phenomenon known as a preference; that is, whenever a person associates with an economical product, the person behaves in a manner that demonstrates the order in which he/she values the use of the product. Thus, the consumption of the initial unit is devoted to the person's most valued end. The subsequent unit gets the second most valued end, and so on. Therefore, the higher the amount of consumption of a specific product in a particular period, the lowers the satisfaction derived from other additional units. 

The Relationship Between Total Utility and Marginal Utility 

Utility describes the level of satisfaction a person gets after consuming a particular commodity at a specified time. Total utility (TU) is the sum of an individual's absolute satisfaction after finishing various units of a good. For instance, if a person becomes satisfied after consuming four units of a commodity or service, four are the total utility. Marginal utility (MU) is the level of satisfaction that an individual obtains after taking an extra unit of a service or a good. (Amacher & Pate, 2019). For example, if a person's total utility is three, and he/she consumes another extra unit of a commodity, then the marginal utility becomes one. The description indicates that when a service or product's total utility maximizes, that commodity's marginal utility declines. As a result, when total utility reaches the maximum point, marginal utility becomes zero and then drops to a negative value. 

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How Marginal Utility Can Be Negative 

The MU can have either a positive or negative value. Positive marginal utility happens when satisfaction increases with the intake of another unit of a product. However, when desire falls with one other product unit's consumption after the saturation point, the MU becomes negative ( Amacher & Pate, 2019) . For instance, consuming the first three slices of bread may taste great because each piece provides the consumer with an additional satisfaction; however, the level of desire often declines with the intake of extra slices. Finally, the fourth, fifth, or sixth slice of the bread can result in negative marginal utility, causing unpleasant results like a stomachache. 

Reason Why Diamonds Are More Expensive Than Water 

The diamond-water paradox is an example of a concept that uses the idea of demand and supply. The higher the supply people have for a commodity, the lesser the value they attach to it. Diamonds are rare to find than water because water is available and accessible from various sources like oceans, lakes, and rivers. A person can reason that water should be costlier because it is more fundamental than diamond, and thus the water demand should be high. Contrastingly, water is so much available in various sources and relatively cheaper. On the other hand, Diamonds have a low supply because they are quite rare and expensive, making their intrinsic value secondary to the subject value assigned to them (Mohammed, 2018). As a result, diamonds are costly because consumers have placed more excellent value on them, unlike water easily accessible. 

The Law of Diminishing Marginal Utility Evaluation 

The view of diminishing marginal utility is a vital concept in economics that helps understand consumers' preferences in day-to-day decisions. The law states that marginal utility decreases as commodity consumption increases (Inglehart, 2018). For instance, if an individual eats six oranges one after another, the initial orange will give him/her twenty utilies. Eating other subsequent oranges makes every extra orange's marginal utility to be lesser because the continual increase in the consumption reduces the. The illustration proves that each additional unit of a product or service consumed provides a diminishing marginal utility rate. Furthermore, excessive consumption of one particular good for a given period can result in a saturation point making the desire fall to nearly zero. 

Notably, the continual consumption after the saturation point makes the total utility fall, leading to disutility or negative marginal utility, which is harmful. The law concept is only successful under particular assumptions; first, the quality of the consumed commodities' additional units should remain constant (Inglehart, 2018). Secondly, the commodities' intake should be continuous because a substantial break in the item's consumption may alter the law's concept. Third, the consumer's perception of the product or service should remain the same over the period. Lastly, the units of good should not be tiny or few to aid correct measurement. 

Items That Do Not Follow the Law of Diminishing Marginal Utility 

Even though satisfaction diminishes when a person takes more units of the same commodity, some exceptional items exist. There are instances where a consumer can gain more utility when consuming additional units of a given product or service over a long period. Hobbies are one of the items that violate the law because people often derive more satisfaction and utility from various successive units gained from a hobby item. Secondly, the law does not apply to misers because they derive more and more benefit from additional goods or services. Thirdly, the consumption of addictive drugs also fails to follow the concept because additional intake of such drugs like alcohol makes the addicts feel more satisfied. Also, the law does not apply to money since the more a person receives extra money, the more he/she becomes satisfied and continues to desires more. Lastly, people who enjoy listening to or watching creative arts like music and poems will always be happy with additional units of such pieces. 

Evaluation On How the Law of Diminishing Marginal Utility Explains the Diamond-Water Paradox 

The idea has helped solve the conflicting observation that water, which is essential than diamonds, has a lower price than diamonds. The utility received from water is very significant, while that of diamonds is substantially less. Even though water is quite vital to human activities, its price is relatively lower, whereas diamonds are less necessary to human existence, but their prices are substantially higher (Todorova, 2020). Consumers receive a high level of total utility from water because it is plentiful; thus, its excessiveness declines its marginal utility, making any additional unit extra of water to provide minimal additional benefit. In contrast, diamonds' total utility is quite limited because they are not as plentiful as water. However, because diamonds are not abundant, their marginal utility becomes relatively higher, and thus, an additional ounce of diamonds gives a consumer a great deal of extra satisfaction. 

In light of the discussions, it is evident that the concept of MU, TU, and the law of diminishing marginal utility is fundamental in explaining consumer preference. The law helps to explain different consumer behaviour and choice. It helps in understanding why people attach little or much value to an item. The assumptions are also fundamental in reinforcing the validity of the law. Despite the few unusual things like money and hobbies, the law is still applicable in most economical products. 


Amacher, R., & Pate, J. (2019). Principles of microeconomics . Bridgepoint Education 

Inglehart, R. (2018). The Diminishing Marginal Utility of Economic Determinism: The Decline of Marxism. In Culture Shift in Advanced Industrial Society , 248-288. Princeton University Press. https://doi.org/10.1515/9780691186740-012 

Kanev, D., & Terziev, V. (2017). Behavioural economics: development, condition, and perspective. International E-journal of Advance in Social Sciences , 3(8), 413-423. https://doi.org/10.18769/ijasos.336969 

Mohamed, F. (2018). Why Are Diamonds More Expensive Than Water? JSTOR. https://daily.jstor.org/diamonds-expensive-water/ 

Todorova, T. (2020). Diminishing marginal utility and the teachings of economics: A note. Leibniz Information Center of Economics . http://hdl.handle.net/10419/222942 

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