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Law Of Diminishing Marginal Utility

Reviewed by Apoorva | Updated on Sep 30, 2020

Catalogue

Introduction

The law of diminishing marginal utility says that everything, if not equal to consumption, will increase the marginal utility procured from every additional declined unit.

The marginal utility might drop down below zero to a negative utility when the situations are completely unfavourable for consuming products. Hence, the very first unit of the product has the highest consumption, and it starts falling thereafter.

Why Law of Diminishing Marginal Utility is Important?

  1. Customer: The law guides the consumer to plan a budget such that maximum satisfaction can be achieved within the available resources.

  2. Producer: The law helps the producer to set the price and sales policy, and to make maximum profit.

  3. Government: The law makes it easy for the government to implement various economic policies, such as social justice. It also contributes to improving the welfare of the people.

Conclusion

The marginal utility is procured from the change in utility for every unit being consumed. The utility can be considered a term to depict happiness and satisfaction. The marginal utility is an incremental increase in the utility resulting from consuming of new units.

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