The Law of Diminishing Marginal Utility
In life, there are so many activities we love which give us satisfaction yet when we indulge too much, and there is a negative consequence. For instance, when a person chooses to drink alcohol to get the courage to socialize with colleagues yet when they drink too much, they will begin misbehaving, in turn, alienating the same colleagues they were trying to please. This example feeds into the quote about too much of something being poison. This paper will discuss the economic concepts total and marginal utility which explain why such phenomena occur.
Total utility indicates how much fulfilment one gets from consuming a good, service or engaging in an activity. Every time someone experiences pleasure from consuming a good, this pleasure adds up to the total fulfilment. On the other hand, marginal utility refers to the contentment gained from using a product just one more time or consuming an extra unit of a good (Boyes and Melvin, 2012). Therefore, there is a wholesome excitement to consuming a good, which is the total utility. Each time one decides to consume more of the good they are seeking marginal utility which either adds to the total utility or reduces it, for example, from the above case of drinking too much until one misbehaves. There was an excitement gained from the first few drinks and had the person stopped there at the end of the party the only impression made would have been how charming and talkative he is. However, because he wanted to add to the satisfaction, he decided to drink more which gave him the marginal utility.
Notably, this case is evidence that marginal utility can be negative because, after the extra drinks, the consequence of overindulging was drunkenness, misbehaviour and a possible hangover in the morning. Alvino et al. (2018) give an example of an individual who usually eats one ice cream every day, but due to the satisfaction she gets from it she decided to eat more, so she went and bought several cartons of ice cream. She was enjoying the ice cream with each fresh one until the fifth where she realized that she was content and couldn’t take one more bite. Unfortunately, she had no place to store the remaining ice cream so that it does not spoil. The stress of realizing what a stupid decision she had made led to dissatisfaction and in this case, the sixth ice-cream gave her a negative utility, thus reducing all the pleasure from the first five ice creams. Therefore, a negative utility refers to when the extra unit of a good causes pain or dissatisfaction instead of contentment.
In the paradox of diamonds being more expensive than water, Mohammed (2018) explains that the reason was hidden behind the issues of supply. There is a high supply of water probably more than we know what to do with, and there is only so much water one can drink or use. On the other hand, diamonds are very few, which makes them more valuable as not every person can have them. As such, it makes them expensive to acquire, whereas water is readily available. Furthermore, the more water one consumes the utility decrease because their thirst will be quenched, and the additional water will increase the number of trips one takes to the bathroom. Meanwhile, the more diamond one has, the wealthier they are, and they can use it to buy other products; hence the utility will be increased.
The diamond and water story feeds into the understanding of the law of diminishing marginal utility. Diminishing marginal utility means that the contentment from consuming a product decrease with each consumption. Therefore, the law of diminishing marginal utility suggests that a good or service will become less valuable with an increase in its supply (Berkman et al. 2016). In this case, the more one consumes a good or service the less need they will feel for it, which will decrease the satisfaction attained from its consumption. In some case, it may even lead to negative marginal utility whereby further use will make the person worse off. As a result, the more the supply, the less the price one will want to pay for this good as they know it will not yield as much satisfaction as it did before. This phenomenon explains the diamond and water paradox because the more water one has the less utility they will gain from it as its uses are limited, yet it is a lot. However, the diamonds one have the higher their utility as they will keep finding new ways of utilizing the diamond such as selling it and giving money to charity or buying a house.
The law of diminishing marginal utility does not apply in all cases; hence some goods and services are an exception to it. For example, there is no point where a person will ever say that they have too much money and cannot take any more because the uses of money are endless; hence each additional unit yields pleasure. Also, for the people whose hobbies are to collect rare goods such as art, coins or stamps the utility would not diminish when they get an extra good because it is their prerogative to collect them and just the process of collecting them brings them joy. Equally, there can never be too much knowledge; hence if someone keeps enrolling in courses to learn something new or buying books, their utility will keep increasing as they have a thirst for knowledge.
Conclusion
In summary, where total utility refers to the fulfilment gained from consuming a good, marginal utility indicates the pleasure from consumption of one extra unit of that good. Some goods such as water have a diminishing marginal utility because the more they are consumed, the less satisfaction one gain and sometimes the consequence of the extra unit makes a person worse off which can be referred to as a negative utility.