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Law of Diminishing Marginal Utility

Definition Of 'Law Of Diminishing Marginal Utility', Investopedia Explains 'Law Of Diminishing Marginal Utility'


Law Of Diminishing Marginal Utility

 

DEFINITION OF 'LAW OF DIMINISHING MARGINAL UTILITY'

 

A law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

 

INVESTOPEDIA EXPLAINS 'LAW OF DIMINISHING MARGINAL UTILITY'

 

This is the premise on which buffet-style restaurants operate. They entice you with "all you can eat," all the while knowing each additional plate of food provides less utility than the one before. And despite their enticement, most people will eat only until the utility they derive from additional food is slightly lower than the original.

 

For example, say you go to a buffet and the first plate of food you eat is very good. On a scale of ten you would give it a ten. Now your hunger has been somewhat tamed, but you get another full plate of food. Since you're not as hungry, your enjoyment rates at a seven at best. Most people would stop before their utility drops even more, but say you go back to eat a third full plate of food and your utility drops even more to a three. If you kept eating, you would eventually reach a point at which your eating makes you sick, providing dissatisfaction, or 'dis-utility'.


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