EXPLAINING UTILITY AND THE LAW OF DIMINISHING MARGINAL UTILITY

        Utility can be defined as the amount of satisfaction expected to be derived from the consumption of a good or service at a particular time. It is the power or capacity of a commodity to yield satisfaction. Utility is subjective concept and that is the reason it differs from person to person, place to place and time to time. For example, for a person who is hungry,  food possess utility but to a person who has just completed his lunch, food has no immediate utility.

        

        The Law of Diminishing Marginal Utility is an important law of consumption in economics. For understanding this, we need to first distinguish between Marginal utility and Total utility.

Marginal utility: It is the additional utility derived when an additional unit of a given commodity is consumed.

Total utility: It is the total amount of utility derived when all the units of a particular commodity are consumed with in a certain period of time.

We can identify from our experiences that when we consume more and more units of the same commodity with in a certain period of time, the utility derived from successive units goes on diminishing. Each additional unit yields less and less satisfaction and finally the want is fully satisfied. Consumption beyond this stage leads to dis-utility or dissatisfaction.

Now, coming to the law, it states that "the more we have of a thing, the less is the utility we get from the consumption of every additional unit of that particular thing". Util is the term used by economists to measure utility or satisfaction.

Example: Suppose a consumer eats 5 chocolates within a short period of time. The first chocolate provides, lets suppose 20 utils. With the second, the marginal or additional utility will be 15 utils. The third chocolate will have only 10 utils. Thus the consumption of each successive chocolate yields less utility until marginal utility of fifth chocolate becomes 0. At this stage, the consumer want is fully satisfied. The consumption of sixth chocolate yields dissatisfaction as utility has turned into dis-utility.