Diminishing Marginal Utility
Diminishing marginal utility is an economic concept that states that as a person increases consumption of a product, there is a decline in the marginal utility that a person derives from consuming each additional unit of that product. In other words, the more of a good or service that is consumed, the less satisfaction one gets from consuming one more unit of that good or service. This concept is used to explain why people tend to buy less of a good or service as its price increases.
History of Diminishing Marginal Utility
The concept of diminishing marginal utility was first introduced by the German economist Hermann Heinrich Gossen in 1854. Gossen argued that the satisfaction a person derives from consuming a good or service decreases as they consume more of it. This concept was later developed by the Austrian economist Carl Menger, who argued that the value of a good or service is determined by the marginal utility it provides to the consumer. This concept has since been used to explain a variety of economic phenomena, such as why people tend to buy less of a good or service as its price increases.
Comparison Table
| Good/Service | Price | Quantity | Marginal Utility |
|---|---|---|---|
| Coffee | $2.00 | 1 | High |
| Coffee | $2.00 | 2 | Medium |
| Coffee | $2.00 | 3 | Low |
Summary
Diminishing marginal utility is an economic concept that states that as a person increases consumption of a product, there is a decline in the marginal utility that a person derives from consuming each additional unit of that product. This concept was first introduced by the German economist Hermann Heinrich Gossen in 1854 and has since been used to explain a variety of economic phenomena, such as why people tend to buy less of a good or service as its price increases. For more information about this concept, you can visit websites such as Investopedia, The Balance, and Khan Academy.
See Also
- Marginal Utility
- Utility Maximization
- Consumer Surplus
- Price Elasticity of Demand
- Income Elasticity of Demand
- Substitution Effect
- Income Effect
- Law of Demand
- Law of Diminishing Marginal Returns
- Marginal Rate of Substitution
