The fifth bar of chocolate is simply not as good as the first because of the law of diminishing marginal utility. According to this law, as a consumer consumes more and more units of a particular commodity, the satisfaction (utility) received from every extra unit of that commodity continues falling. By the time you’ve eaten your fifth chocolate, you’re not as hungry as you were when you started on the first chocolate.
We all get food cravings from time to time. It can be midnight snacking, exam stress binge eating, or simply eating chocolate after chocolate due to sheer boredom. So there we are, opening wrapper after wrapper of Cadbury.
The first bar of chocolate tastes heavenly. You pick up the second bar, then the third, and then the fourth. Finally, on your fifth bar, you notice that the taste is no longer satisfying, so you stop eating. It might even make you throw up or never want to see a bar of chocolate again. Why does this happen?
The fifth bar is not as good as the first because of the law of diminishing marginal utility.
Although the law of diminishing marginal utility is an economic term, it has broader applications in everyday life. In order to understand diminishing marginal utility, let’s break it down one word at a time.
Utility, total utility and marginal utility
Utility: The usefulness, value or satisfaction one receives from the consumption of a unit of a commodity. In our case, it is the pleasure received from the consumption of a bar of chocolate.
Total Utility: The sum total of satisfaction received from the consumption of various units of the commodity. The overall satisfaction received from consuming five bars of chocolate is the total utility for us.
Marginal Utility: The slight increase or decrease in satisfaction by the consumption of an extra unit of a commodity.
However, satisfaction is a subjective term and cannot be accurately quantified. Let’s take the example of one individual, Ryan. Ryan rates his first bar of chocolate as 20. He rates the second bar of chocolate as 30. The marginal utility in Ryan’s case is 10 (30-20).
Let’s look Ryan’s total utility and marginal utility in the form of a table.
|Units of chocolate||Total Utility of Ryan||Marginal Utility|
|1||20||20 Initial utility|
|2||30||30-20= 10 Positive|
|4||34||34-34= 0 Zero|
|5||27||27-34= -7 Negative|
Table showing Ryan’s total utility and marginal utility.
With every unit of chocolate that Ryan consumes, his total utility or total satisfaction increases and then decreases. This happens because his hunger is satiated after a certain point. However, the marginal utility is continuously falling. It is first 20, then 10, 4, 0 and eventually -7.
The first bar of chocolate will always taste the best. After the first few bars, you get used to the taste and it doesn’t give the same kind of satisfaction.
This law not only applies to chocolates, but to the consumption of a wide variety of products. Let’ss take the example of water. When you’re thirsty, the first glass will feel like finding an oasis in the desert. The fourth glass might not feel the same way, as you are no longer thirsty.
Diminishing Marginal Utility
Let’s look at the marginal utility column of Ryan.
Table showing Ryan’s diminishing marginal utility.
As we look at the marginal utility of Ryan, it is clear that is falling or diminishing with every extra bar of chocolate that he consumes.
Law of diminishing marginal utility
According to this law, as a consumer consumes more and more units of a particular commodity, the satisfaction (utility) received from every extra unit of the commodity falls.
As we refer to the table above, after the fourth bar of chocolate, Ryan is not receiving any extra satisfaction from eating an additional bar of chocolate. And when he moves on to the fifth bar, the marginal utility actually becomes negative. Thus, Ryan will not have any more chocolates. Ideally, he should stop at the fourth bar.
The same law can be represented in the form of a line graph.
With every increase in the consumption of a bar of chocolate, the marginal utility declines. As one traces the blue line (marginal utility), one can see that a falling graph represents diminishing marginal utility.
Applications of the law
This law is widely used in the world in a variety of ways. The buffet dinners offered by restaurants work on the law of diminishing marginal utility. After taking a serving of one plate of food, when the customer goes onto their second helping, it will not give them the same satisfaction because their hunger is satiated. Although we feel that the buffet may be an economical advantage for us, it is also profitable for the restaurant. You can obviously never finish the entire buffet!
This law is also used in progressive taxation systems. All individuals are not taxed the same. As one earns more, one is taxed more. The poor have a higher marginal utility of money than the rich. 20$ for a poor man is more valuable than the same 20$ for a rich man. Hence, the rich can afford to pay higher taxes than the poor.
Assumptions of the law
Every law will have its assumptions in order for the law to hold true. Let’s look at the various assumptions we need to hold when looking at diminishing marginal utility.
- Units of goods are homogenous. In our case, Ryan needs to consume only bars of chocolate, of the same kind. If he consumes Lindt and then eats a bar of Snickers, the law will not hold true.
- Time gap. The time gap between the consumption of the bars of chocolate needs to be constant. Ryan cannot have one bar at 1 pm, the second at 3 pm and the third at 7 pm. His hunger will naturally increase by the time he consumes the third bar, thereby increasing the marginal utility.
- No price change. All five bars of chocolate need to have the same cost. If the cost increases or decreases, it will change the utility derived from the product.
- Taste, preferences and fashion should remain unchanged.
Next time you eat a bar of chocolate and want to reach out for a few more, keep in mind that they won’t give you the same satisfaction as that first delicious bite! The law of diminishing marginal utility is a great diet tip, don’t you think?
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