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Diminishing Marginal Utility

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The concept of diminishing marginal utility is covered in this short revision video.

Diminishing Marginal Utility

The Law of Diminishing Marginal Utility states that if the consumption of a good or service increases, the satisfaction derived gradually increases but at a decreasing rate, to the point where it reaches zero. Total satisfaction is maximised when marginal utility is zero.

There are lots of topical examples of diminishing returns some of which have possibly significant economic and social effects. For example, the preferences of many people to take advantage of cheap clothing perhaps wearing something just once and then throw it away – this has major environmental consequences. We often find examples of diminishing marginal utility in the food and drink sector – consider the temptations of an all you can eat buffet or a decision to start and then finish off a tube of crisps! Some people become over-dependent on over-the-counter drugs whose effect might wear off with excess dosage.

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