A law of economics stating that as a person increases consumption of a product – while keeping consumption of other products constant – there is a decline in the marginal utility that person derives from consuming each additional unit of that product. EXPLANATION This is the premise on which buffet-style restaurants operate. They entice you with “all you can eat,” all the while knowing each additional plate of food provides less utility than the one before.
And despite their enticement, most people will eat only until the utility they derive from additional food is slightly lower than the original. For example, say you go to a buffet and the first plate of food you eat is very good. On a scale of ten you would give it a ten. Now your hunger has been somewhat tamed, but you get another full plate of food. Since you’re not as hungry, your enjoyment rates at a seven at best. Most people would stop before their utility drops even more, but say you go back to eat a third full plate of food and your utility drops even more to a three.
If you kept eating, you would eventually reach a point at which your eating makes you sick, providing dissatisfaction, or ‘dis-utility’. The Law of Diminishing Marginal Utility – The law of diminishing marginal utility can be logically deduced from the axiom of human action. To show this, let us start with some remarks on utility. Utility is a subjective concept. It denotes “satisfaction” (or “happiness” or “contentment”).
The Review on Concerning Organic Certification And Labeling Of The Food We Eat.
This paper explores the ethical issues concerning the certification of organic food products. Consumers have a higher tendency to purchase food products labeled as organic due to their concern for the environment and other purposes intended by organic foods. As such, the organic food market has seen an increasing growth trend in sales. However, it has been uncovered that many companies that ...
It rises if and when an individual increases his or her state of satisfaction.
Conversely, if and when someone considers himself in a worse state of affairs, his utility decreases. What is more, utility is an ordinal concept, meaning that utility cannot be measured in terms of higher or lower utility from the viewpoint of an individual; and changes in utility among different people cannot be measured. All one can say is that utility is higher or lower from the viewpoint of an individual. Rothbard explained why this is: In order for any measurement to be possible, there must be an eternally fixed and objectively given unit with which other units may be compared.
There is no such objective unit in the field of human valuation. The individual must determine subjectively for himself whether he is better or worse off as a result of any change. Marginal utility means the utility of increments of goods; it means the utility of enjoying an additional good. Marginal utility does not mean increments of utility — which would imply measurability of utility. So what does the law of diminishing marginal utility say?
The law says, first, that the marginal utility of each (homogenous) unit decreases as the supply of units increases (and vice versa); second, that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit (and vice versa).
The first law denotes the law of diminishing marginal utility, the second law the law of increasing total utility. These two dimensions of the law of diminishing marginal utility follow directly from the axiom of human action; they can be logically deduced from it, and they do not in any way depend on psychology or any behavioral assumption. This will be shown in what follows.
