Law of Diminishing Marginal Utility

The law of diminishing marginal utility is an economic principle that states that as a person consumes more of a good or service, the marginal utility that they receive from each additional unit decreases. In other words, the first unit of a good or service provides more utility than the second unit, the second unit provides more utility than the third unit, and so on.

This principle is often used to explain why people are willing to pay more for the first unit of a good or service than they are for the second unit. For example, a person might be willing to pay $10 for a bottle of water when they are very thirsty, but they might only be willing to pay $5 for a second bottle of water. This is because the first bottle of water provides more utility than the second bottle, so the person is willing to pay more for it.

The law of diminishing marginal utility can also be used to explain why people often buy in bulk. When people buy in bulk, they are able to spread out the cost of the good or service over a larger number of units, which can lead to a lower average cost per unit. This can be a good way to save money, especially on goods or services that are consumed regularly.

The law of diminishing marginal utility is a fundamental principle of economics that has a number of important implications for consumer behavior. It can help to explain why people are willing to pay more for the first unit of a good or service, why they often buy in bulk, and how prices are determined in a market economy.