what is the law of diminishing marginal utility 
the law of diminishing marginal utility states that all else equal as consumption increases the marginal utility derived from each additional unit declines marginal utility is the incremental increase in utility that results from the consumption of one additional unit utility is an economic term used to represent satisfaction or happiness in simple terms the law of diminishing marginal utility means that the more of an item that you use or consume the less satisfaction you get from each additional unit understanding the law of diminishing marginal utilityto understand how the law of diminishing marginal utility affects both consumers and businesses it can be helpful to break down its components utility is the degree of satisfaction or pleasure a consumer gets from an economic act for example when hungry a consumer can purchase a sandwich to eat so they are no longer hungry thus the sandwich provides some utility marginal utility is the enjoyment a consumer gets from each additional unit of consumption it calculates the utility beyond the first product consumed if you buy a bottle of water and then a second one the utility gained from the second bottle of water is the marginal utility the law of diminishing marginal utility directly relates to the concept of diminishing prices as the utility of a product decreases consumers are only willing to pay smaller dollar amounts for more of the product for example assume an individual pays 100 for a vacuum cleaner because they have little need for and therefore see less value in a second vacuum cleaner the same individual is willing to pay only 20 for it the marginal utility may decrease into negative utility at that point it s entirely unfavorable to consume another unit of any product therefore the first unit of consumption for any product is typically highest after that every unit of consumption to follow holds less and less utility consumers handle the law of diminishing marginal utility by consuming numerous different goods which keeps the utility for each one high the law of diminishing marginal utility makes several assumptions examples of the law of diminishing marginal utilityimagine you can purchase a slice of pizza for 2 you re very hungry so you decide to buy five slices when you eat the first slice of pizza you gain a certain amount of positive utility from eating because you were hungry and this is the first food you ve eaten lately the first slice has a large benefit after you eat the second slice of pizza your appetite is becoming satisfied you re not as hungry as before so you experience a smaller benefit and less enjoyment with the second slice than with the first the third slice holds even less utility since you re only a little hungry at this point with the fourth slice of pizza you experience a diminished marginal utility as well it might be difficult to eat because you re already full from the first three slices as for the fifth slice you can t even eat it you re so full from the first four slices that consuming the last slice of pizza would result in negative utility businesses can use this principle to structure their workforce for example a company may benefit from having three accountants on its staff but if there is no real need for a third hiring one results in a diminished utility due to the minimum benefit gained if you have two accountants but no one to process paperwork hiring a new administrative assistant has a higher level of utility than hiring a third accountant the law of diminishing marginal utility can also affect what goods and services businesses offer to customers as it encourages a certain level of diversification in the above example with the pizza if the consumer knows they won t want the fourth and fifth slices of pizza they might not buy them in the first place but they may see a high level of utility in a different food such as a salad by diversifying its menu the shop selling pizza can avoid diminished marginal utility and encourage consumers to purchase more the law of diminishing marginal utility directly impacts a company s pricing because the price charged for an item must correspond to the consumer s marginal utility and willingness to consume or utilize the good 