The Law of Diminishing Marginal Utility

Published: 2021-06-29 07:09:27
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Category: Science

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In Economics, Supply and demand curves explain how a market functions. The demand curve slopes downwards and the supply curve slopes upwards. Both the curves cut each other at a point known as Equilibrium point. These curves provide the guidance to analyze the price trends of commodities in a market. These curves are based on the combined demands of all consumers in a market. To understand the market more, it requires understanding the demand patterns of individual consumers. How a consumer takes decisions in purchasing commodities has a significant role in understanding the functioning of a market. The total utility, marginal utility and law of diminishing utility are the concepts of microeconomics which explain the economic behavior of an individual consumer.
The Law of diminishing marginal utility says that the marginal utility of each additional unit of a commodity declines with increase in the quantity consumed. This principle also explains that the determination of price depends upon the marginal utility but not on the total utility of that commodity. This concept provides solution for why certain commodities though having high utility for the consumers are cheap compared to the commodities which are having low utility. If a commodity has high marginal utility, its price would be high. Whereas if a commodity has a low marginal utility, its price would be low. This paper attempts to explain the concepts of total, marginal utility, law of diminishing marginal utility and optimum purchase rule. This optimum purchase rule analyses what decisions are opt for the consumers with regard to how much of a commodity they shall buy and at what price?

Total utility and Marginal utility:-
Utility means benefit or satisfaction. A purchaser buys a commodity because it has some utility for him. This utility is a personal satisfaction which a purchaser obtains in purchasing a product. Daily, millions of consumers take millions of decisions. A purchaser wants to decide whether to go to movie or to purchase a ticket. Another one wants to decide whether to purchase an additional kilo gram of bananas or to purchase biscuits for his son. How purchasers arrive at a decision when they are required to take a decision in a particular situation. What factors influence the purchasers in taking decisions? Economists have constructed a concept total utility and marginal utility to determine what decisions are opt and what decisions are not opt for the consumers.

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