Economics
ECO 204 Ashford University Wk 2 Law of Diminishing Marginal Utility Discussion

ECO 204

ashford university

ECO

### Question Description

I’m studying and need help with a Economics question to help me learn.

Prior to beginning work on this discussion, read Farah Mohammed’s article, Why Are Diamonds More Expensive Than Water? (Links to an external site.), as well as Chapter 5 in your textbook, especially Sections 5.1 and 5.3, and respond to the following:

• Describe the relationship between total utility and marginal utility.
• Explain if marginal utility can be negative.
• Examine the diamond-water paradox. Why are diamonds more expensive than water?
• Evaluate the law of diminishing marginal utility.
• Identify some items, explaining your reasoning, that do not follow the law of diminishing marginal utility.
• Evaluate how the law of diminishing marginal utility can explain the diamond-water paradox.

The Law of Diminishing Marginal Utility paper

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The Law of Diminishing Marginal Utility - Outline
Thesis statement: The extra contentment gained from consuming additional standard sizes of
goods is marginal utility. Consumption of these extra units increases satisfaction initially, but the
use of successive units will lead to a fall in satisfaction leading to diminished marginal utility.
The diamond-water paradox suggests that diamond is more valued and treasured as
compared to water. This situation is paradoxical since water is more beneficial to
humans than diamonds. Yet, we still place a high value on diamonds.
II. Items that are exception to the law of diminishing marginal utility
A. Hobbies
B. Alcoholic products
C. Music and poetry
D. Books
E. Misers
F. Homogenous products

Running head: THE LAW OF DIMINISHING MARGINAL UTILITY

The law of diminishing marginal utility
Name
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THE LAW OF DIMINISHING MARGINAL UTILITY

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The law of diminishing marginal utility
The contentment that a consumer gains from consumption of a product is measured in
terms of utils. Total utility refers to the contentment consumers derive from the use of a
particular product (Amacher, & Pate, 2012). The extra contentment gained from consuming
additional standard sizes of goods is marginal utility. Consumption of extra units increases
satisfaction initially, but the use of successive units will lead to a fall in satisfaction leading to
diminished marginal utility (Ormazabal, 1995). An increase in consumption of a product may
increase contentment but up to certain levels where consumption of successive units may lead to
unpleasant outcomes. However, when additional contentment is at zero, satisfaction is at its
highest (Amacher, & Pate, 2012).
How additional satisfaction can be negative
The additional contentment gained with extra units can be negative when there is full
satisfaction and hence, consumption of these extra units will be unpleasant (Amacher, & Pate,
2012). This scenario can be explained through utility curves. As consumption increases from
zero to more significant amounts, the utility gains are huge (Ormazabal, 1995). However, a
successive increase in quantity consumed depicts a decline in utility gained and thus, causing the
curve to be downward sloping. Therefore, as consumption increases, marginal utility becomes
significantly smaller until it reaches zero and eventually becomes negative.
The diamond-water paradox suggests that diamond is more valued and treasured as
compared to water, this situation is paradoxical since water is more beneficial to humans than
diamonds. Yet, we still place a high value on diamonds (Amacher, & Pate, 2012). The scarcity
aspect of diamond makes them valuable since the subjective value is assigned to them, while the

THE LAW OF DIMINISHING MARGINAL UTILITY

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availability of water makes it less valued. This aspect of water can, however, be explained by
this law suggesting that when a product is highly available, its supply increases, making it less
valuable.
Evaluation of the principle
This economic principle explains how marginal utility may decrease, making it harmful
when the consumer is satisfied and thus, further consumption of the product by the consumer
proves to be unfavorable (Amacher, & Pate, 2012). Diminishing marginal utility translates to a
diminishing effect in prices. High consumption of a product decreases the wil...

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