Unit 2 - Economic Essentials
Learning Target 5: I can explain the law of diminishing marginal utility.
In the previous section you just learned when your needs or wants are satisfied value is created. The word value is often times referred to as utility by economists.
Think about a time you were super hungry and ordered a lot of food. The first bite was probably amazing as well as the next couple of bites. At some point, you realized that you were no longer hungry but kept eating anyway. At that point you started to experience the law of diminishing marginal utility.
The law of diminishing marginal utility states that as a person increases consumption of a product at some point there will be a decline in the value derived from consuming each additional unit of that product.
This law can be applied to almost every aspect of your life. Food is the easiest example to relate to this law. Ask someone who has gone to college if there is a food they can no longer eat such as ramen noodles or macaroni and cheese. Whatever they answer is also their answer to if they have ever experienced the law of diminishing marginal utility. You can also relate this law to fitness. A few years back it was common thought that one must spend hours upon hours in the gym to see results. After some research it was found that there is a certain time in which your gains become less and less the more you spend in the gym. Sticking with the sports theme, think about how excited you are at the beginning of a sports season. When the season starts you probably can’t wait for practice and games but by the time the season is nearing its end you may be ready for the season to end or don’t feel like practicing, etc… This is also an example of the law of diminishing marginal utility.
The law of diminishing marginal utility is important to understand as it helps businesses determine volume of products available for sale and set prices as the price charged must equal the value derived and the customer’s willingness to consume or use this product or service.
To look a little more about the law of diminishing marginal utility watch this video. https://www.youtube.com/watch?v=d0AouX33WMk
Make the connection: Provide a personal narrative of a time you experienced the law of diminishing marginal utility. Make sure in your answer to create a graph that assigns a value of satisfaction for each unit consumed.