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Diminishing
Marginal Utility
Definition
 There
is a decline in the marginal utility
that a person derives from consuming
each additional unit of that product.
Diminishing Marginal Utility
 For
example: A family without a car would
gain a lot from the use of a first car.
However, they would not have as much
use for a second car. They might even
begin to suffer from the use of a third car.
Reminder
 This
is economics class.We can quantify
anything.
 Assume
a person puts a value on the
consumption of a good. They would
generally place less value on the
consumption of that same good again.
Hot Day Cold Drinks
 Water
 You
is being sold for CHF 6 a bottle.
would buy that first bottle of water.
However would you place the same
value on a second bottle of water? How
about the third? Would you pay CHF 6 for
the fourth bottle?
Candy Bars
 Eventually
you would begin to feel
stomach pain from the consumption of
your seventh or tenth candy bar.
 At
this point your gain from consuming the
next candy bar is negative. You will
actually feel worse if you ate it.
However
 Under
certain circumstances an individual
can gain from the consumption of an
additional good.
 Example:
Theatre tickets – who wants to
go alone?
 Example: Antibiotics- the use of one pill
will just make the bacteria stronger. Ten
will kill it.