What is the 'Law Of Diminishing Marginal Utility'?

As the quantity of a certain consumed goods increases in a specific term (when the consumption of other goods are fixed), marginal utility, which each additional unit of goods alter the total utility, gradually decrease. This is called the Law of Diminishing Marginal Utility.

In a situation that the Law of Diminishing Marginal Utility is valid, in the time that a goods or service is started being consumed, marginal utility starts decreasing from the first point while total utility is increasing at a decreasing pace. The relations between Total Utility and Marginal Utility can also be summarized as seen on the below.

MU makes an impact on the direction of TU. As a consequence,

• While TU is increasing, MU is always positive.
• While TU is decreasing, MU takes negative values.
• When TU is maximum, MU is zero.

(These consequences can be found out by checking on the chart below)

Example of Diminishing Marginal Utility

Suppose an individual who is quite hungry. She can buy a slice of pizza for $2. But, she buys five slices of pizza. She eats the first slice of pizza and gains certain positive utility from eating the food. Because the individual was quite hungry and this is the first food she consumed, the first slice of pizza has a high utility. While consuming the second slice of pizza, the individual’s appetite is becoming satisfied. She is not as hungry as before now. So, the second slice of pizza gives a smaller utility compared to the first. The third slice, compared to the before, holds even less utility because the individual is now not hungry anymore.

In fact, the fourth slice of pizza has given a diminished marginal utility as well, as it is difficult to be consumed because the individual experiences discomfort upon being full from food. Finally, the fifth slice of pizza cannot even be consumed. She is so full from the first four slices that consuming the last slice of pizza results in negative utility. The fifth slice of pizza refers the decreasing total utility and negative marginal utility that is experienced upon the consumption of any good. It is shown on the figure with arrows.