What is Utility and Law of Diminishing Marginal Utility:
The word diminish means to ‘make or become less’ and Marginal utility (MU) means the benefit that is derived from consuming additional unit of a product or service.
Utility is an economic term which means satisfaction or happiness derived from consuming a product. Demand of any good is based on the ‘Law of diminishing marginal utility’, which means that as the consumer goes on consuming a commodity, it’s utility goes on decreasing.
Watch this scene from a legendary movie called ‘Chupke Chupke’.
Case breakdown: Movie Chupke Chupke
It shows how Parimal Tripathi ( Played by Dharamendra) is continuously eating lunches and dinner at his friends’ place, only to have indigestion later. With every unit of lunch/ dinner he consumes, satisfaction derived from next lunch/dinner goes down, finally he is advised to not eat food for some time.
Example of Diminishing Marginal Utility:
Another example to understand this would be: when you have ran a long marathon, consuming the first glass of water gives you the most satisfaction, second glass of water is also satisfying but the level of satisfaction has come down, third glass of water gives even lesser utility as compared to the first and second as now the quench for thirst is subsiding.
This also directly ties up with the price, as one obtains highest satisfaction with the first glass of water, consumer is willing to pay more for it. As he continues to reach satisfaction, he wants to pay lesser.