Define the Law of Diminishing Marginal Utility and provide examples to explain it.

Expert Solution

Law of diminishing marginal utility states that all things being constant, as the consumption of a good increase, the marginal utility derived from that good decreases. Marginal utility is the additional utility derived from the consumption of an extra unit of a good. Here utility is nothing but the satisfaction derived from consuming a good.

For example, if a person is hungry and he starts with the first sandwich his satisfaction from that sandwich is very high. When he consumes the second sandwich, the satisfaction derived from it reduces as compared to the first sandwich and the utility derived from it will be lesser than before. Then there will be a point at around 5th sandwich when he won't feel like taking even a bite. This point is called the saturation point and at this point, his utility or satisfaction is 0 from that good. Thus we can see that this law is true for any good because the satisfaction from the higher units consumed of any good keeps on decreasing.

Rahul Sunny answered 1 year ago

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