Consumer Behavior

Diminishing Marginal Utility

Diminishing marginal utility, a common feature of consumption goods, occurs when marginal utility declines as the quantity of a good consumed increases.
A woman buys a vase every day for 30 days and finds that the 30th vase didn't bring her as much happiness as the first. Like this consumer, many people are already intuitively familiar with the concept of diminishing marginal utility, which is the observation that each additional unit of a product consumed will yield progressively smaller increases in utility. More generally, a good exhibits diminishing marginal utility when marginal utility decreases as the quantity of the good consumed increases. Put another way, a good exhibits diminishing marginal utility when each additional unit of a good does not provide as much happiness as the one before. Consumer behavior changes based on diminishing marginal utility and impacts the number of products created.

Diminishing Marginal Utility

With each new unit of good, the consumer's utility decreases slightly. This is represented by the marginal utility (MU) curve. MU1 is the marginal utility of consuming the Q1th unit, and MU2, a smaller number, is the marginal utility of consuming the Q2th unit of the good. This decrease in the utility of consuming one extra unit is known as diminishing marginal utility.
Graphically, diminishing marginal utility is represented by a downward-sloping marginal utility curve. A consumer buys a cell phone, offering a high utility, but for each cell phone bought, the marginal utility decreases because the consumer does not have the need or desire for a large quantity of cellphones.

Economists believe that most, if not nearly all, goods exhibit diminishing marginal utility. This is because most goods would lead to some form of saturation or satiation—more simply, consumers appreciate goods less when they are less scarce.