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What is Law of Diminishing Marginal Utility?
The term “Marginal utility” refers to an increase in the total utility of a commodity when one additional unit of the same is consumed. In simple terms, the Law of Diminishing Marginal Utility is a law that states when a person consumes something he or she gains happiness or utility from it; but this amount of utility gets diminished the more he or she consumes the same commodity.
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Why is it important?
The Law of Diminishing Marginal Utility is also referred to as ‘Fundamental Psychological Law’ or ‘Fundamental Law of Satisfaction’ and it is an important theory in economics. The more the standard unit of a specific good is consumed, the more is the decline in the marginal utility that is derived from each extra unit. This law describes a fundamental and familiar tendency of human nature. It has been arrived at through observation of general behavior and also by introspection.
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