Diminishing Marginal Utility
Diminishing Marginal Utility is the explanation for describing how as the quantity of something you have goes up, the less you want it. For example, let's say you wanted to buy a piece of cake. The first piece of cake may provide the greatest satisfaction in the world. But as you keep purchasing pieces of cake, you start to get sick and you start to despise cake. That is a great example of diminsihing marginal utility.

Diminishing Marginal Utility doesn't always apply to every situation. Sometimes as you increase the quantity, the marginal utility increases. For example, if you keep receiving money with no strings attached and no possibility for it being taken away, the marginal utility will begin to increase. This is very important when you have to decide which type of marginal utility your situation pertains to.


This is showing how the first Swiss cake probably tasted good, but the 15th definately wasn't appealing at all.


Graph- The graph shows how the total utility goes up over an increased amount of variable x. The marginal utility is diminishing. We can see this as the slope gets smaller farther along the curve. Depending on the variable, the graph would begin to slope downwards should the graph have continued.


Marginal_Utility.jpg

Links
**Law of Diminishing Marginal Utility**
Wikipedia Definition
Research Blog

Question
How does the law of diminishing marginal utility play a role in "all you can eat" deals at restaurants?



Answer: Restaurants don't lose money on "all you can eat" deals because of the law of diminishing marginal utility. As people keep eating food, their satisfaction per plate becomes lower the more they eat. Most people do not keep eating after their satisfaction from the food is not as high as before. In conclusion, people do not eat as much as the promotion makes it sound.