Question

In: Economics

Provide an example for the concept of 'Diminishing marginal utility'. please go in detail

Provide an example for the concept of 'Diminishing marginal utility'.

please go in detail

Solutions

Expert Solution

Diminishing marginal utility - It means that as the person goes on consuming more and more units of a good , its utility level goes on decreasing with consumption of every additional unit.

Example - A consumer can buy one pizza slice for Rs 5 , she is very hungry and thought to purchase 5 slices . When she consumes the very first slice , she gained a positive utility after eating it because she was very hungry and at that time it was the first thing she consumed which gave her high satisfaction.Now , on consuming the second slice , her hunger is little satisfied and this slice gave her less utility as in case of first slice because now he was not as hungry as she was before.At the consumption of third slice, her satisfaction level would be less than what she derived from the second slice as he is not much hungry now. With the consumption of next slice i-e fourth, she faced even lower utility i-e diminishing marginal utility than before because now she is not hungry anymore and consumption of this slice would give her discomfort. Now , at the consumption of fifth slice , she is completely full with the consumption of four slices eaten earlier and now if she will consume this fifth slice, she would experience negative utility.So, this is how with consumption of every additional unit of slice , her satisfaction level goes on diminishing . This is called diminishing marginal utility.


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