Law of Diminishing Marginal Utility

1. According to Chapman: "The more we have of a thing, the less we want additional increments of it or the more we want not to have additional increments of it."
2. According to Anatol Murad, "The law states that other things being equal, the marginal utility of a stock decreases as the quantity of the stock increases."
3. According to Samuelson, "As the amount consumed of a good increases, the marginal utility of the good leads to a decrease."

• When a person consumes more units of the same good, the extra satisfaction (marginal utility) from each new unit becomes less.
• Example: The first slice of pizza tastes best. By the fourth or fifth slice, you enjoy it less.

The diagram below shows the marginal utility curve going down as you consume more units. When marginal utility hits zero, total satisfaction is at its maximum. Consuming more can make you less happy (negative utility).

• Marginal utility is the extra happiness from one more unit.
• At first, utility is high because your need is greatest.
• With each new unit, your need falls, so each one adds less satisfaction.
• Eventually, extra units provide no additional benefit or can even be unpleasant.

1. Explains why people want variety, not just more of one thing.
2. Helps government decide fair tax policies (richer people pay more).
3. Helps set fair product prices.
4. Encourages companies to offer different goods.

• Given by French engineer Gossen
• Also called Gossen’s First Law
• First given by H.H. Gossen, systematically explained by Alfred Marshall
• As consumption increases, marginal utility decreases
• Other things remaining constant
• Each extra unit gives less satisfaction.
• Utility may become zero or even negative if overconsumed.
• Law helps explain real consumer and economic behaviour.