Marginal Utility

Posted on February 7, 2022 by Cheapest Assignment

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Financial Institutions

Marginal Utility

Marginal utility is a concept used in economics that enhances the understanding of how customer satisfaction affects their decisions as consumers. In this regard the law of diminishing marginal utility holds for any product, its first utility is more significant than the second and the other successive that follow. Therefore, as individuals consume more of a product, they tend to have diminished satisfaction. In this case, the marginal supply of the product is increasing, which negatively affects the satisfaction that individuals get from the product (Trifu, 2020). Less satisfaction is attributed to the decline in the product’s valuation compared to the first use. There are other parameters connected to the concept of diminishing marginal utility, such as the time preference.  

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From my experience, I bought pieces of chocolate, but the satisfaction I got from the consumption of all these pieces was different. The first chocolate tended to have a more enhanced taste than the second and the third. However, the taste was not different; instead, I was not satisfied the same way as I was before. I had a lower satisfaction in the second piece, and in the third piece, the situation was worse.

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There are three different forms of marginal utility which include positive, zero, and negative. On this matter, positive marginal utility refers to a scenario when more product consumption brings increased satisfaction. Hear consumption is directly proportional to satisfaction since if it increases it also increase the latter significantly. For example, when you are eating slices of cake, and the second piece bring more happiness, then, in this case, that marginal utility is positive. Zero marginal utility means more consumption of a product does not result in any measurable satisfaction. For example, after eating the two slices of cake, and you are relatively full, eating more portions does not feel better (Trifu, 2020). In contrast, negative marginal utility is where the consequences of consuming more pieces of the cake are harmful. 

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Trifu, A. (2020). The Marginal Diminishing Returns/Marginal Increasing Returns in The Pursuit of Happiness. Global Journal of Management and Business Research.

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