People face Tradeoffs everyday and need to make Choices |
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A rational consumer will try to achieve the highest level of utility, or pleasure, or happiness, or satisfaction possible.
In deciding how much of one item to consume, the law of diminishing marginal utility eventually sets in.
Chocolate is good, Chocolate is delicious, Chocolate is good for you!
On October 31, Halloween, we all like to dress up and extort candy from our neighbors, by ringing their door bell and saying, "Trick or Treat!" In fact, let's say we derive 100 utils from the experience. After we have made our rounds and return home, it is decision time.
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| Point | Total
Utility | Marginal
Utility |
| A | 100 | |
| | | 10 |
| B | 110 | |
| | | 7 |
| C | 117 | |
| | | 4 |
| D | 121 | |
| | | 1 |
| E | 122 | |
| | | -2 |
| F | 120 | |
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"What candy bar should I eat first?"
"What candy bar should I eat next?"
"What candy bar should I eat after that?"
"And finally, what candy bar should I eat last?"
"Or should I stop at only three?"
Now the first bit of chocolate was very delicious and your level of utility, or pleasure, or happiness, or satisfaction rose by perhaps 10 utils. So Total Utility has increased to 110.
The next bit of chocolate was quite delicious, and your level of utility, or pleasure, or happiness, or satisfaction rose by say 7 utils.
The third bit of chocolate was just delicious, and your level of utility, or pleasure, or happiness, or satisfaction rose by say 4 utils.
And the fourth bit of chocolate...actually don't you think you have already had enough?
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Now that you mention it, perhaps four candies would be one too many. The marginal, or additional, or incremental utility that you get from each bit of chocolate gets smaller or diminishes.
So while Total Utility increases, it is increasing at a decreasing rate. Hence, the Law of Diminishing Marginal Utility.
If you continued to eat chocolate till you were sick, Total Utility would decrease and Marginal Utility would be negative!
So put down the chocolate and go brush your teeth.
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