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📖 Standard Introduction

Marginal utility theory is one of the core theories of microeconomics, proposed during the Marginal Revolution of the 1870s (Menger, Jevons, Walras). Marginal utility refers to the additional satisfaction a consumer gains from consuming one additional unit of a good. The law of diminishing marginal utility states that: over a given period, as consumption increases, marginal utility decreases and may even become negative. This theory explains why the demand curve slopes downward, resolves the "paradox of value" (water is cheap while diamonds are expensive), and lays the foundation for consumer equilibrium theory and price theory. Marginal utility theory marked the shift from classical labor theory of value to subjective value theory.

💬 Plain English Explanation

The law of diminishing marginal utility means: the first bite of something is always the best, and each subsequent bite is less satisfying. When you're very thirsty, the first glass of water is incredibly satisfying; the second is still good; the third is just okay; by the fourth, you might not want any more. This is "diminishing marginal utility"—each additional unit consumed provides less additional satisfaction. This theory explains many phenomena: Why is water so important yet cheap? Because there's so much water, the marginal utility of one more glass is very low. Why are diamonds less useful yet expensive? Because diamonds are scarce, the marginal utility of one more diamond remains high. Understanding this principle explains why "scarcity creates value."

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💡 Law of Diminishing Marginal Utility