Diminishing Marginal Utility: Why the First Banku Tastes Best | Economics SHS 1 SEM 1 WEEK 7 (WASSCE & NaCCA Aligned)

Understanding Utility: The Foundation of Consumer Choices

We are guided by the NaCCA Content Standard 1.3, which requires us to “Employ knowledge of the concept of utility in everyday life, as a rational consumer.” Recall that Utility simply means the satisfaction, enjoyment, or benefit derived from consuming a good or service. Economists assume consumers are rational, meaning we always strive to maximize our total satisfaction given our limited resources, particularly our income and time.

Deconstructing the Law: Diminishing and Marginal

The Law of Diminishing Marginal Utility (LDMU) is one of the most fundamental principles guiding consumer behaviour. To truly understand it, we must first master the two core terms:

• Marginal: In economics, “marginal” always means “additional” or “one more.” Therefore, Marginal Utility (MU) is the extra satisfaction gained from consuming one additional unit of a good.
• Diminishing: This means “reducing” or “decreasing.”

Therefore, the LDMU states: As a person consumes more and more units of a specific good or service, the additional utility (satisfaction) derived from each successive unit will eventually decrease.

The Water Analogy: A Practical Ghanaian Example

Imagine you have just finished a long, dusty journey and are severely thirsty. You decide to drink small, cool sachets of water. Let’s analyze your satisfaction (Utility) as you drink:

• Unit 1 (First Sachet): This sachet satisfies the overwhelming, acute thirst. The satisfaction (MU) is extremely high. Let’s assign it 10 units of utility.
• Unit 2 (Second Sachet): You are still thirsty, but not desperately so. The benefit is still positive, but clearly less than the first. You gain 6 units of utility.
• Unit 3 (Third Sachet): Your thirst is essentially gone. Drinking this sachet provides very little functional benefit. You gain only 2 units of utility.
• Unit 4 (Fourth Sachet): You are now full, perhaps slightly bloated and feeling discomfort. Drinking this provides no positive satisfaction; in fact, it causes Disutility (negative utility). The utility gained is -1 unit.

Notice how the Total Utility (TU) continues to increase (10, 16, 18), but the Marginal Utility (MU) is consistently dropping (10, 6, 2, -1). The LDMU focuses specifically on the MU dropping after the first few units. This fulfills the NaCCA Learning Outcome to use relevant information to explain the concept.

The Implication for Rational Consumer Decisions

If the satisfaction you gain from a good decreases as you consume more of it, how does this affect what you buy? This is the central link between utility and the downward-sloping Demand Curve, a key requirement of the NaCCA Learning Indicator (applying the law into everyday life).

A rational consumer will only continue to buy more units of a good as long as the additional satisfaction (MU) derived from that unit is greater than or equal to the price (P) paid for it. The moment MU drops below the cost, the consumer stops buying. This is the consumer’s equilibrium rule: MU = P.

Since the Marginal Utility (MU) decreases with consumption, the consumer’s willingness to pay for additional units also decreases. This fundamental principle explains why sellers must lower prices if they want people to buy large quantities—it is the underlying economic reason for the Law of Demand.

The Point of Satiety and Disutility

If we were to plot the Marginal Utility on a graph, the curve would consistently slope downwards. The point where the MU curve crosses the X-axis (where MU=0) is called the Point of Satiety (or saturation). At this point, the consumer is completely satisfied, and their Total Utility is maximized. Beyond this point, any further consumption leads to Disutility (negative MU), meaning the consumer is worse off.

WASSCE Success Strategy: Applying the Law

The West African Senior School Certificate Examination (WASSCE) often tests the application of LDMU. When answering theory questions on this law, always use a three-part structure to ensure maximum marks:

1. Definition: Clearly state the LDMU (as MU decreases with successive units).
2. Example: Use a real-life illustration (food, music, video games) and quantify the drop in satisfaction.
3. Implication: Explain how the dropping MU affects the consumer’s willingness to pay, linking it directly to the reason the demand curve slopes downwards.

Mastering the concept that MU determines price willingness is critical for high scores in consumer behavior questions, proving that you have achieved the NaCCA Content Standard.

Key Terms to Master

• Total Utility (TU): The overall satisfaction gained from consuming all units.
• Marginal Utility (MU): The satisfaction gained from the last unit consumed (calculated as Change in TU / Change in Quantity).
• Consumer Rationality: The assumption that consumers aim to maximize their utility.
• Point of Satiety: The level of consumption where Marginal Utility is zero (0) and Total Utility is at its maximum.