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Diminishing Marginal Utility

Definition

Diminishing marginal utility is the concept that as a person consumes more of a good or service, the additional satisfaction or utility derived from each additional unit decreases.

Analogy

Imagine you're at an all-you-can-eat buffet. The first plate of food brings immense pleasure and satisfies your hunger. However, as you continue to eat, each subsequent plate provides less enjoyment and may even make you feel uncomfortable. Diminishing marginal utility is like experiencing diminishing returns in terms of satisfaction from eating more food.

Related terms

Total Utility: Total utility refers to the overall amount of satisfaction or happiness obtained from consuming a certain quantity of goods or services.

Law of Demand: The law of demand states that as the price of a good or service increases, the quantity demanded decreases, assuming other factors remain constant.

Rational Behavior: Rational behavior refers to individuals making choices based on their preferences and trying to maximize their own well-being given limited resources.