LAW OF DIMINISHING MARGINAL UTILITY NEW.pdf.pdf

Explanation about law of DMU

1. MMooddeerrnnSSttyyllee
PPrreesseennttaattiioonn
LAWOF
DIMINISHING
MARGINAL UTILITY
SharmishtaJena
B.Com(firstyear)
Supervisor:

2. INTRODUCTION
1.The LawofDiminishingMarginalUtility
(DMU)isafundamentalconceptineconomics.
2.Itstatesthatas apersonconsumesmoreunits
ofagood, the additionalsatisfaction(utility)
gainedfromeachextraunitdecreases.
3.Thefirstunitofaproductgives the highest
satisfaction, andeachsubsequentunitprovides
lessandlessutility.
4.Example:Thefirstsliceofpizzagivesgreat
satisfaction, butbythefourthorfifth slice,the
enjoymentdecreases.

3. DEFINITION
and
Definition:“Asaconsumerconsumesmoreunitsofa
good, themarginalutilityderivedfromeachadditional
unitdeclines.”
TotalUtility(TU):Theoverallsatisfactionobtainedfrom
consumingacertainquantityofgoods.
MarginalUtility(MU):Theadditionalsatisfactiongained
fromconsumingonemoreunitofagood.
WhenMUdecreases,TUincreasesatadiminishingrate
andeventuallyreachesitsmaximumpoint
EXPLANATION

4. Example
-:Supposeapersoneats
chocolatesoneafteranother:
1stchocolate→verysatisfying
2ndchocolate→stillgood,but
lessexciting
3rdchocolate→satisfaction
reduces
4thchocolate→mayeven
causediscomfort

5. Importance:
Explainsconsumer
behaviorandthelawof
demand.
Helpsbusinessesin
pricingstrategies—
consumerspaylessfor
additionalunits.
Formsthebasisfor
rationalconsumption
decisions.
LIMITATIONS:
Assumesallunitsof
thegoodare
identical.
Utilitycannot
alwaysbemeasured
numerically.
Doesnotapplyto
addictivegoods or
collectibles where
satisfactionmight
notdecrease.

6. ModernStyle
Borcelle Presentation
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