Explain what the principle of diminishing marginal utility means in a few sentences.
The correct answer and explanation is:
Correct Answer:
The principle of diminishing marginal utility states that as a person consumes additional units of a good or service, the satisfaction (utility) gained from each additional unit decreases. In other words, the more of something you have, the less you value each extra unit.
300-Word Explanation:
The principle of diminishing marginal utility is a fundamental concept in economics that explains how consumer satisfaction changes with consumption. “Utility” refers to the satisfaction or benefit a person gains from consuming a good or service. The word “marginal” refers to the change that results from consuming one more unit.
As a consumer uses more of a product, the additional satisfaction from each new unit tends to decline. For example, imagine eating slices of pizza. The first slice when you’re very hungry brings a lot of satisfaction. The second slice is also enjoyable, but probably not as satisfying as the first. By the third or fourth slice, the pleasure you get from eating more starts to decline. Eventually, you may feel full or even uncomfortable, and a fifth or sixth slice might bring no enjoyment at all — or even negative utility.
This principle helps explain consumer decision-making. It shows why people usually buy a variety of goods instead of spending all their money on just one product. Once the marginal utility of a good falls below its price, a rational consumer will stop buying more of it and spend their money elsewhere to gain higher satisfaction.
Understanding diminishing marginal utility is important for businesses and policymakers. Businesses use it to set prices and create product bundles that maximize customer satisfaction. Economists and governments use the principle to understand taxation, public spending, and resource allocation.
In short, diminishing marginal utility explains why the value we place on things decreases as we get more of them — and it helps shape both consumer choices and economic policy.