Utility and Satisfaction: Why the First Piece is Always the Sweetest | Economics SHS 1 SEM 1 WEEK 7 (WASSCE & NaCCA Aligned)

Understanding Utility: The Core of Consumer Choice

Welcome, future economists! In previous lessons, we defined Utility as the satisfaction or pleasure a consumer derives from consuming a good or service. This concept is central to the NaCCA Content Standard 1.3: Employing knowledge of utility in everyday life as a rational consumer. Today, we delve into the most crucial law governing utility: The Law of Diminishing Marginal Utility (LDMU).

Defining the Key Terms

To grasp LDMU, we must first break down its components:

• Total Utility (TU): This is the entire satisfaction gained from consuming a certain quantity of a good. If you drink three glasses of water, the TU is the total satisfaction from all three glasses combined.
• Marginal Utility (MU): This is the additional satisfaction gained from consuming one more unit of a good. It measures the change in Total Utility when consumption increases by one unit. It is the incremental benefit.
• Diminishing: This simply means ‘reducing’ or ‘decreasing in intensity.’

Think of MU as the score you give to each additional item. If the first bite of waakye is a 10/10, the MU of that first bite is 10. If the second bite is an 8/10, the MU of the second bite is 8. The MU is clearly diminishing.

The Law of Diminishing Marginal Utility (LDMU)

The Law of Diminishing Marginal Utility states that: As a consumer consumes more units of a particular good, the additional utility (satisfaction) derived from each additional unit tends to diminish, assuming the consumer’s tastes and preferences remain unchanged.

This is a universal economic truth based on human psychology and physiology. Your specific need for that item is gradually being met, reducing the urgency and therefore the satisfaction derived from subsequent units.

The Ghanaian Example: The Thirsty Consumer

Imagine walking in Accra’s hot sun after school, terribly thirsty. You stop at a kiosk for chilled water:

• Glass 1: You drink it quickly. The satisfaction (MU) is extremely high, perhaps 10 utils (units of utility). Your thirst is largely quenched.
• Glass 2: You drink it slowly. It still tastes good, but the relief is less intense. MU is now 6 utils.
• Glass 3: You feel full and only drink half. You might feel slightly bloated. MU drops to 2 utils.
• Glass 4: You refuse it entirely. Consuming it would cause discomfort. MU is now 0 or even negative (-2 utils).

The Total Utility (TU) keeps rising as long as the Marginal Utility (MU) is positive (10 + 6 + 2 = 18). However, when MU hits zero (or becomes negative), the TU begins to fall, indicating maximum satisfaction has been reached, or even surpassed (disutility).

Implications for Rational Decision Making

The LDMU is not just theoretical; it drives every purchasing decision we make. The NaCCA Learning Indicator requires us to apply this law to everyday life. Why do rational consumers stop buying a product, even if they can afford more?

1. The Need to Stop

Because the satisfaction (MU) drops, the consumer realizes the next unit is not worth the price. A rational consumer will only continue to buy an item as long as the satisfaction gained is equal to or greater than the price paid. Once MU is less than the price, the consumer stops buying.

2. Linking LDMU to the Demand Curve

This law provides the fundamental economic explanation for the downward-sloping demand curve. As MU falls with increased consumption, consumers are only willing to purchase more units if the seller lowers the price. Since the additional benefit (satisfaction) is dropping, the price must drop to compensate. This linkage is crucial for advanced WASSCE questions.

WASSCE Success Strategy: Mastering the Relationship

When studying LDMU for WASSCE, focus on the relationship between MU and TU:

• When MU is positive, TU is increasing.
• When MU is zero, TU is at its maximum point.
• When MU is negative, TU is decreasing.

Be prepared to draw and interpret the graphs showing the TU curve (which rises, flattens, and then falls) and the MU curve (which consistently slopes downwards, crossing the X-axis at maximum TU). Use clear examples other than water, such as repeatedly watching your favorite Black Stars match or continually buying the same type of textbook when your need for knowledge is already met.