https://www.investopedia.com/terms/u/utility.asp paper text: 1Running head: THE LAW OF DIMINISHING MARGINAL UTILITY The Law of Diminishing Marginal Utility Barbara Tatum Ashford University ECO 204 Principles of Microeconomics Instructor: Lawrence Murphy November 30, 2020 4The Law of Diminishing Marginal Utility Relationship between total utility and marginal utility Utility describes the usefulness or satisfaction emanating from the consumption of a good or service. Utility directly influences the 15demand and therefore the price of a good or service; hence vital to gauge and understand its utility. Total utility refers to the cumulative satisfaction acquired after 10consuming a given ultimate quantity of a good or service. In contrast, marginal utility refers to the additional utility provided by one other unit of consumption. With the 16total utility being the aggregate of satisfaction and marginal utility being the additional satisfaction, the two terms relate in that the increase rates are inversely proportional. There is a fall in marginal utility with an increase in total utility such 13that when the marginal utility is at 0, the total utility is at maximum. There is a reduction of marginal utility with every additional unit's consumption while total utility increases with an increase in consumption resulting in diminishing returns. Possibility of marginal utility being negative Yes, the marginal utility can decrease into negative utility. In essence, this might occur when one has consumed too much of an item such that additional consumption can be harmful (Shirzad, A. 2018). For example, a consumer can buy a piece of meat for $1; due to hunger, he decides to buy like ten meat pieces. The consumer eats the first piece of meat and gains some amount of positive utility. 8Because the consumer was hungry, which is the first piece consumed, the first piece has a high benefit. Upon consuming the succeeding portion, the consumer is becoming satisfied since he was not as hungry as before; hence the second piece of meat has reduced benefit and enjoyment compared to the first one. As consumption continues, there is a reduction in utility as he is no longer hungry. The pieces of meat diminish in marginal utility, resulting in some pieces not being consumed. Reasons 11why diamonds more expensive than water from the diamond water-paradox The diamond-water paradox seeks to shed some light on why people naturally value somethings more than others, which they can die if they lack. This narrows down to a simple explanation that an item's value is tied to its supply and usage such that we tend to low cost a commodity which is available in plenty and we use it more (Fort, B. 2018). Water is readily available in the diamond and water comparison in oceans, streams, dams, and other water reservoirs, while diamonds are very few and hidden deep beneath the earth in embedded rocks. Water usage is also careless, with examples being washing cars with running water, filling bathtubs, and filling sinks when washing utensils, while diamonds are carefully used to make expensive jewelry. According to the Labor Theory of value, an item's price 7is determined by the cost incurred to bring it to the market. Since higher charges are incurred to obtain the 7diamond to the market than water, diamonds' price should be more than water's price (Michael, H. 2014). There is a higher consumption of water than the consumption of diamonds than by marginal utility; the water cost is way lower than that of the diamonds. 6The law of diminishing marginal utility Marginal utility obtained from any commodity declines with the increase in its consumption. This is 6the law of diminishing marginal utility. Marginal utility results from an additional unit of a commodity, causing an incremental increase in utility. This can decrease into the negative utility in the event that it becomes entirely unfavorable to consume a unit of the commodity. The law relates directly to diminishing prices where an increase influences consumers' willingness to pay high amounts for a commodity in utility hence a decrease in its consumption. The diminishing marginal utility law elaborates that when the supply of any item is high, it is excessively used therefore less valued. Consumers interact with an economic good in a manner that displays their priority. This is demonstrated where the first good they consume happens to be the top on the priority list, and the priority reduces up to the least valued (Ross, S. 2019). The law clarifies that spending on goods is not uniform as people tend to pay more for some items and less for others. Exceptions 14of the law of diminishing marginal utility The law holds to the fact that as more of an item is consumed, the utility falls. However, the law has exceptions in that the consumption of an object results in more utility than consumed. These items include; hobbies. Stamp collection and coin collection result in more and more utility from additional unit consumption. Satisfaction increases with an increase in the variety of stamps and coins received (Nitisha, N. 2020). Also, the law cannot be applied to misers since they drive more utility from more and more of the variety of the good. 1The law of diminishing marginal utility explaining the diamond-water paradox Economist Adam Smith highlights the useless functionality of diamonds as compared to water in the diamond-water paradox. This perfectly adds up with the explanation of 12the law of diminishing marginal utility where it illustrates that as long as the supply of water will remain high and used excessively, its value will be lower as compared to that of scarcely available diamonds, maintaining the more excellent value. References Fort, B. L. (2019, February 1). 5Why the hell are Diamonds Worth more than Water? - Impact Economics. Medium. https://medium.com/impact-economics/why-the-hell-are- diamonds-worth-more-than-water-c5079d7b3ec6 N. 9(2015, August 11). Law of Diminishing Marginal Utility (Limitations and Exceptions). Economics Discussion. https:// 3www.economicsdiscussion.net/consumer/law-of- diminishing-marginal-utility-limitations-and-exceptions/3481 Sandelin, B., Trautwein, H., & Wundrak, R. (2014). A Short History of Economic Thought (3rd ed.). 2Routledge. 1 THE LAW OF DIMINISHING MARGINAL UTILITY 2 THE LAW OF DIMINISHING MARGINAL UTILITY 3 THE LAW OF DIMINISHING MARGINAL UTILITY 4 THE LAW OF DIMINISHING MARGINAL UTILITY 5