law of diminishing marginal utility with diagram

The Law of Diminishing Marginal Utility (DMU) is a fundamental principle in economics that explains consumer behavior.


Explanation of the Law

The Law of Diminishing Marginal Utility states that as a consumer consumes more and more units of a specific commodity, the additional satisfaction (utility) derived from each successive unit goes on decreasing.

In simpler terms: The first bite of pizza is the best, the second is good, the third is okay, and by the fourth or fifth, you may start feeling full and get very little or even negative satisfaction.

Key Concepts:

  • Utility (U): The total satisfaction or pleasure a consumer derives from consuming a given quantity of a good or service.
  • Marginal Utility (MU): The additional satisfaction gained from consuming one more unit of a commodity.where TU is Total Utility and n is the unit consumed.

Relationship between Total Utility (TU) and Marginal Utility (MU)

Units ConsumedTotal Utility (TU)Marginal Utility (MU)Stage of Utility
11010MU is positive and decreasing
2188
3246
4284
5302
6 (Saturation Point)30 (Maximum)0MU is Zero
728-2MU is negative (Disutility)

Diagrammatic Representation

The Law of Diminishing Marginal Utility is shown by a downward-sloping Marginal Utility curve. The diagram also illustrates the relationship between Total Utility and Marginal Utility.Image of Total Utility and Marginal Utility graphs

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Total Utility (TU) Curve

  • The TU curve rises as consumption increases, but at a decreasing rate.
  • It reaches its maximum point when the Marginal Utility (MU) is zero (at the 6th unit in the table). This is the point of satiety or maximum satisfaction.
  • It starts to fall when Marginal Utility becomes negative (after the 6th unit).

Marginal Utility (MU) Curve

  • The MU curve is a downward-sloping line, illustrating the Law of DMU (as consumption increases, MU decreases).
  • It cuts the x-axis when MU = 0 and TU is maximum.
  • It continues below the x-axis when MU is negative (disutility).