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Summary LAW.docx The Law of Diminishing Marginal Utility ECO 204 Principles of Microeconomics Economic Utility is defined as the œsatisfaction a consumer receives from consuming a good or service (Amacher& Pate, 2019). This definition is derived from the co$7.49
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Summary LAW.docx The Law of Diminishing Marginal Utility ECO 204 Principles of Microeconomics Economic Utility is defined as the œsatisfaction a consumer receives from consuming a good or service (Amacher& Pate, 2019). This definition is derived from the co
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LAW.docx The Law of Diminishing Marginal Utility ECO 204 Principles of Microeconomics Economic Utility is defined as the œsatisfaction a consumer receives from consuming a good or service (Amacher& Pate, 2019). This definition is derived from the concept of usefulness which helps to define ...
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Running head: THE LAW OF DIMINISHING MARGINAL UTILITY 1
The Law of Diminishing Marginal Utility
ECO 204 Principles of Microeconomics
Economic Utility is defined as the “satisfaction a consumer receives from consuming a
good or service” (Amacher& Pate, 2019). This definition is derived from the concept of
usefulness which helps to define economically how useful a good or service will be to the
consumer. Utility has a major influence on the demand and the price of goods and services.
, THE LAW OF DIMINISHING MARGINAL UTILITY 2
There are two variances of utility which are, total utility and marginal utility. Total Utility is the
amount of total satisfaction that a consumer gets from all a good or service. Marginal Utility is
the change in satisfaction that occurs when consuming one more or one less unit. Both are
important for understanding utility and demand.
Understanding the relationship between Total Utility (TU) and Marginal Utility (MU) is
important to the overall picture of utility and understanding how it affects demand and pricing
within the economy. Total utility is the overall satisfaction while marginal is the change in
satisfaction based on amount consumed. Units of measurement in terms of utility are measured
in util. To understand how each unit consumed adds different utils to the TU the MU needs to be
added or subtracted. An example to illustrate how TU and MU function together would be ice
cream scoops consumed by an individual.
If an individual has 0 scoops of ice cream, they would have a TU of 0 utils. The number
of scoops of ice cream they consume would increase the amount of TU however, after so many
scoops are consumed the TU will begin to decrease. A decrease is caused by having too much of
something and getting less satisfaction out of it which is when marginal utility can become
negative. Marginal utility comes into play to show how each scoop has a different amount of util
that it adds to the TU. If consuming one scoop of ice cream creates a TU of 7 utils and two
scoops creates a TU of 12 utils then the MU can easily be measured by considering that the
second scoop of ice cream only added 5 utils to the total and was not as satisfactory as the first
scoop.
Classical economists refer to the diamond-water paradox when the value of use can not
determine the price of a good or service. The more there is of something the more it will be taken
for granted or hold less value. While water is essential to every human, there is so much of it that
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