What Is Diminishing Marginal Utility?

Diminishing marginal utility means that as a person consumes more units of a good, the extra satisfaction gained from each additional unit tends to fall, assuming other things stay the same. Marginal utility is that extra satisfaction; total utility is the satisfaction gained from all the units consumed.

Syllabus focus: This is the A Level Utility point $\mathrm{7.1.2}$. It builds on the demand concepts in the AS Level topic The price system and the microeconomy; diminishing marginal utility itself is A Level content.

A simple example

Imagine you are thirsty and drink identical glasses of water. The first glass may give you a lot of satisfaction, the second less, and the third less again. If your total utility after each glass is $10$, $18$ and $24$ units, the marginal utilities are $10$, $8$ and $6$ units. Each extra glass still adds to total utility, but adds less than the one before it.

To calculate marginal utility, subtract total utility before a glass from total utility after it. For the second glass, this is $18-10=8$ units; for the third, it is $24-18=6$ units. These are illustrative units of satisfaction, not money or a claim that satisfaction can be measured precisely.

This happens because the more of a good you have consumed, the less urgent your remaining want for it may be. Economists use the idea to help explain why an individual may be willing to pay less for an additional unit of a good. It is one step towards understanding an individual demand curve, rather than a claim that everyone values a good in exactly the same way.

Common mistake: Diminishing marginal utility does not mean total utility must fall. In the example, total utility rises from $10$ to $24$, even though the gain from each glass gets smaller. Total utility falls only if an additional unit gives negative marginal utility.