Diminishing Marginal Utility Flashcards, test questions and answers

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What is Diminishing Marginal Utility?

Diminishing marginal utility is an economic concept that states that the more of a good or service that an individual consumes, the lower its ability to satisfy them. This phenomenon typically follows a downward sloping graph, with satisfaction decreasing as consumption increases. In other words, as you consume additional units of a good/service your satisfaction (utility) from consuming those additional units declines. In economics, diminishing marginal utility can be explained in terms of diminishing returns; if one were to increase their usage of something beyond what the optimal amount would provide them with maximum satisfaction then each subsequent increase will yield less and less benefit. As such, it is important to understand this concept when making decisions regarding consumption so as not to over-consume and experience negative consequences. For instance, someone may want to purchase a certain item but once they have reached their desired level of possession it might be wise for them to stop buying any further quantity since any additional goods could lead to diminishing levels of enjoyment. Understandably, there are many different factors which affect our perceptions on how much utility we receive from goods and services including personal tastes/preferences and current needs/situations – all these should be taken into account when considering whether or not diminishing marginal utility applies in a particular situation. Therefore by taking all these elements into consideration individuals will be able to make better informed decisions about how much they should buy and ensure that they do not purchase too much at once and thus incur unnecessary costs due to diminished satisfaction from over-consuming goods/services.