The Law of Diminishing Marginal Utility - SS2 Economics Lesson Note

The law of diminishing marginal utility states that as a consumer consumes more units of a good or service, the additional satisfaction or happiness they derive from consuming each additional unit diminishes. In other words, the more of something we consume, the less satisfaction we get from each additional unit consumed.

For example, if a person is hungry and eats a slice of pizza, they will derive a certain level of satisfaction from that first slice. However, if they continue to eat more slices of pizza, the level of satisfaction they get from each additional slice will diminish until they eventually reach a point where they feel full and derive no additional satisfaction from consuming more pizza.

The law of diminishing marginal utility is important in economics because it explains why consumers tend to demand less of a good or service as its price increases, and why producers tend to supply more of a good or service as its price increases.