The Law of Diminishing Marginal Utility paper
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The Law of Diminishing Marginal Utility paper
Introduction
The law of diminishing marginal utility is an important concept to understand. It falls in the category of microeconomics and is significant in day-to-day decisions. The principle of diminishing marginal utility states that the higher the consumption of a particular good, the lower the marginal utility of an additional unit (Danko et al., 2019). For example, as one consumes soda, the seventh one will provide less additional pleasure than the second one. The analogy presents the best understanding of the law of diminishing marginal utility. This paper discusses the concept of diminishing marginal utility in detail.
The Relationship between Total Utility and Marginal Utility
The utility is referred to as the satisfaction that a customer receives from using or consuming a good or service. In economics, the term utility does not necessarily mean useful. Several things are not useful, in real life, which gives satisfaction (Amacher & Pate, 2019). The level of utility varies from one individual to the other. The utility is the satisfaction that one receives from consuming a good or service. “Marginal utility (MU) is the amount of utility that one more or one less unit consumed adds to or subtracts from the total utility”. On the other hand, total utility (TU) is the sum of all utilities obtained by the customer from various units of the commodity. Therefore, both total and marginal utility are related (Amacher & Pate, 2019). The relationship is well depicted in the calculation below.
MU=
Explain If Marginal Utility Can Be Negative
It is indeed true that marginal utility can be negative. This may happen when the customer’s satisfaction with a certain product falls below zero. The negative utility is likely to happen when it is entirely unfavorable for the customer to consume another unit of the product (Mohammed, 2018). For example, the first unit consumption of any product or service is usually the highest. The subsequent units of consumption usually hold less and less utility. An example of negative marginal utility is below:
| Scopes Quantity (Q) | Total Utility | Marginal Utility |
| 1 | 25 | 25 |
| 2 | 45 | 20 |
| 3 | 60 | 15 |
| 4 | 74 | 6 |
| 5 | 80 | 6 |
| 6 | 65 | -15 |
| 7 | 59 | -6 |
| 8 | 55 | -4 |
The Diamond-Water Paradox. Why are Diamonds More Expensive Than Water.
The water diamond paradox; why diamonds are more expensive than water is a simple but difficult question to answer, especially for those who do not understand the law of diminishing marginal utility. However, people who understand the concept of diminishing utility can easily get the answer. Mohammed (2018) in his article stated that, when the supply of a product is high, the more useful it is, and the lesser value it gains. For instance, water is readily available in oceans and pumped ceaselessly to homes and houses. On the other hand, there are fewer diamonds, hidden and embedded rocks. Therefore, the intrinsic value of a diamond is a subjective value assigned to them (Mohammed, 2018). The law of diminishing utility depicts that consumers have put a greater value on diamonds than on life-giving water.
Evaluate the law of diminishing marginal utility
The law of diminishing marginal utility occurs when consumption is high and marginal utility reduces. As people consume more units of a good, the later units yield less of addition to total utility than the preceding units did (Danko et al., 2019). This law of diminishing marginal utility applied to both durable and non-durable goods. For example, if one buys a certain type of bread, soon they will buy rice because the initial satisfaction from the bread is diminishing.
Identify Some Items, Explaining Your Reasoning, Which Does Not Follow the Law of Diminishing Marginal Utility
Although the law of diminishing marginal utility is widely accepted, however, there are a few items that do not follow the concept. Money is one such example. The more money a person makes, the more they want it (Amacher & Pate, 2019). The desire for money does not follow the law of diminishing marginal utility. Another great example is nicotine. The more nicotine one consumes the more one wants it. Nicotine is addictive, hence, the more they take, the more they need.
Evaluate How the Law of Diminishing Marginal Utility Can Explain the Diamond-Water Paradox
Regarding the diamond-water paradox, the law of diminishing marginal utility explains it by accepting the fact that water is more valued in everyday life because it is a necessity for human beings to survive (Mohammed, 2018). People use water for cooking, cleaning, bathing, and others. At the same time, the consumption and resources available for water are so high that people simply refuse to value it as much as diamonds. Since water supply is high and consumption is high, its marginal utility reduces than that of diamonds.
Conclusion
The law of diminishing utility is an important part of human life. As supply increased and consumption increases, the marginal utility of such products reduces over time. The marginal utility can be diminished to a negative value. The law also explains the diamond-water paradox.
References
Amacher, R., & Pate, J. (2019). Principles of microeconomics (2nd ed.). https://content.ashford.edu/books/Pate.5378.18.1/sections/ch05sec5.1
Danko, E. V., Oskorbin, N. M., & Ternovoy, O. S. (2019, March). About the informational utility of investment project expertise. In Journal of Physics: Conference Series (Vol. 1210, No. 1, p. 012031). IOP Publishing. https://iopscience.iop.org/article/10.1088/1742-6596/1210/1/012031/meta
Mohammed, F. (2018). Why Are Diamonds More Expensive Than Water? JSTOR Daily. https://daily.jstor.org/diamonds-expensive-water/