Economics Marginal Utility Questions Medium
The relationship between marginal utility and price is known as the law of diminishing marginal utility. According to this law, as the quantity consumed of a particular good or service increases, the additional satisfaction or utility derived from each additional unit consumed decreases. In other words, the more of a good or service a person consumes, the less satisfaction they derive from each additional unit.
This relationship has implications for price. As the marginal utility of a good or service decreases with each additional unit consumed, consumers are willing to pay less for each additional unit. Therefore, the price that consumers are willing to pay for a good or service tends to decrease as they consume more of it.
This concept is important for businesses to understand when setting prices. They need to consider the diminishing marginal utility experienced by consumers and ensure that the price they set aligns with the perceived value and satisfaction derived from each additional unit consumed. If the price is too high relative to the marginal utility, consumers may choose to consume less or seek alternatives, potentially leading to a decrease in demand.