Aditi Mittal

Kirti Rathod


Pursuing Economics, and deep-diving to bring you A1 writings...


Riya Bhatia


> The law of diminishing marginal utility asserts that as you consume more of a product or service, the extra satisfaction gained from each additional unit decreases. Consequently, consumers may focus on products that offer greater utility and adjust their spending to maximize overall satisfaction.

**Imagine this scenario:** You've just moved into a new home and you're excitedly furnishing it from scratch. Today's task? Utensil and cutlery shopping. At first, you're eager, tossing items into your cart with abandon. But as the day wears on, you start to hesitate. Do you really need that fancy spatula? This is the law of diminishing marginal utility at work.

**So, what exactly is this law?** It's a concept introduced by economist Alfred Marshall that explains how as you acquire more of a product, the satisfaction you get from each additional unit decreases. In simpler terms, the more you have, the less you value each new item.

Let's break it down with a couple of examples:

##### Example 1:

You're packing for vacation and decide to buy some new clothes. At first, you're excited, grabbing shirts and shorts left and right. But once you have an outfit for each day, you become more selective. Each new purchase brings less joy than the last.

##### Example 2:

A company is hiring customer support agents. Initially, they're eager to fill positions and offer generous salaries. But as the team grows and productivity peaks, they become less willing to pay top dollar for each new hire.

Of course, there are exceptions to this rule:

- Hobbies like stamp collecting or painting can bring increasing satisfaction with each new addition.
- Addictive substances like alcohol or nicotine defy the law, as users often crave more with each use.
- Rare or limited-edition items, such as vintage watches or signed books, can maintain or even increase in value over time.

Understanding this law is crucial for both consumers and businesses:

- Consumers may seek alternatives once they've reached their limit with a product.
- As demand decreases with increased consumption, businesses may need to lower prices to keep customers interested.

Keep an eye on your spending habits to see the law of diminishing marginal utility in action. By observing how your purchasing behavior changes as you acquire more of a product, you can gain insight into this fundamental economic principle.


The law of diminishing marginal utility asserts that as you consume more of a product or service, the extra satisfaction gained from each additional unit decreases. Consequently, consumers may focus on products that offer greater utility and adjust their spending to maximize overall satisfaction.

Showing posts from economy category

The Happiness Equation: Exploring the Law of Diminishing Marginal Utility