The law of diminishing marginal utility states that as a person consumes more and more of a particular good or service, the additional utility or satisfaction that they derive from each additional unit decreases. This means that the first unit of a good or service will typically provide more satisfaction than the second, and so on.
There are several key conclusions that can be drawn from the law of diminishing marginal utility.
First, it helps to explain why people tend to demand more of a good or service when its price is lower, and less when the price is higher. This is because, as the price of a good or service decreases, the marginal utility of each additional unit increases. Conversely, as the price increases, the marginal utility of each additional unit decreases, leading to a decrease in demand.
Second, the law of diminishing marginal utility can help to explain why people may be willing to pay more for certain goods or services that are considered to be scarce or rare. If a good or service is rare, it may have a higher marginal utility for an individual, as the additional satisfaction derived from consuming it is likely to be higher.
Third, the law of diminishing marginal utility can also help to explain why people may be willing to pay more for certain goods or services that are considered to be essential or necessary. For example, if a person is hungry, they may be willing to pay a higher price for food because the marginal utility of the additional food is likely to be higher.
In conclusion, the law of diminishing marginal utility is a fundamental economic concept that helps to explain how people make decisions about what to consume and how much to consume. It also helps to explain why people are willing to pay different prices for different goods and services, depending on their perceived value and utility.