Enlarge Image Microeconomics basically deals in individual concepts such as consumer's demand, producer's supply, factors of production, etc. One of the major phenomenon that is targeted by micro economists, is the behavior of consumers, which in terms of economics is also known as 'demand'. Though behavior of consumers regarding consumption is targeted by the economists, factors such as income of consumers, spending psychology and alternative resources to satisfy needs are also targeted.
The principle of diminishing marginal utility, is based upon three important psychological and economic concepts, consumption, utility and satisfaction. The concept is based upon the platform of 'marginalist theory' and 'paradox of value theory', which was developed and explained by classical economist, Adam Smith (who authored the famous book Wealth of Nations). Many classical and neo-classical economists, refined and propagated this 'paradox', which has evolved to what we today know as the Law of Diminishing Marginal Utility. Credit of development of the 3 basic laws of economics, namely, Law of Demand, Law of Supply and Law of Diminishing Marginal Utility (which are the platform of almost all economic concepts, that we use today) goes to neo-classical economists, David Ricardo, Friedrich Von Wieser and Alfred Marshall. To make a long story short, these consumption theories that have been formed to solve the problem of scarcity have evolved from the times of Aristotle to the modern era. Moving on to utility...
What is Utility?
It is in the human nature to demand things to satisfy needs. The satisfaction that a person gets after consuming or using a specific commodity, is often termed as utility. The drawback of the usage of this term is that it is not measurable with the help of any numerical unit. In cases where the commodity is to be used, such as a cell phone, then utility is measured in accordance with usefulness. In cases where consumption is present, then it is observed in accordance with satisfaction after consumption. Thus, utility is quite a time bound and relative concept that depends upon the satisfaction and usefulness that is felt after the consumption of successive commodities. On the whole, the concept is an abstract one.
What is Diminishing Marginal Utility?
Adam Smith and Alfred Marshall were one of the first people who pointed out to the psychology of diminishing utility. According to this concept, utility can be segregated into two different dimensions, namely total utility and marginal utility.
- Total Utility: Total utility is basically denotes that amount of utility that is derived by the consumer from the entire stages of consumption. The total amount of utility basically goes on increasing after successive consumption of units.
- Marginal Utility: In comparison to total utility, marginal utility is even more relative, as it indicates the utility that is derived upon the time bound, successive consumption of congruent units.
Law of Diminishing Marginal Utility
The law states that "...under normal conditions, the marginal utility that is derived from the successive consumption of units goes on decreasing after a point of satiety, while the total utility goes on increasing at a diminishing rate, after the point of satiety is achieved...". The diminishing marginal utility of income, is one of the most apt example of utility that diminishes, for non-consumption (income is earned, and not consumed).
It can be concluded that the law of diminishing marginal utility is applicable in all consumer goods and services. However, as a way of life, it is always better to adopt the utilitarianism mode of the consequentialism school of thought (propagated by Jeremy Bentham and John Stuart Mill), as it targets at balancing wants and resources that are available to fulfill them.
0 komentar:
Posting Komentar