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What are the exception of the law of marginal diminishing utility ?
Franciy Shoo
Dec 14, 2023
What are the exception of the law of marginal diminishing utility ?
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Dec 14, 2023
The law of diminishing marginal utility states that as a person consumes more units of a good or service, the additional satisfaction or utility derived from each additional unit decreases. However, there are a few exceptions or situations where this law may not hold true:
1. Giffen Goods: Giffen goods are inferior goods for which the demand increases as the price increases. In the case of Giffen goods, the law of diminishing marginal utility does not apply because the higher price actually increases the perceived value or utility of the good.
2. Veblen Goods: Veblen goods are luxury goods that are considered status symbols. The demand for Veblen goods increases as the price increases because their high price is seen as a sign of exclusivity and prestige. In this case, the law of diminishing marginal utility may not hold as the perceived utility of the good increases with its price.
3. Habit Formation: In some cases, the law of diminishing marginal utility may not apply if consuming a good or service leads to the formation of a habit. For example, addictive substances like cigarettes or drugs may not follow the law of diminishing marginal utility as the satisfaction derived from each additional unit may remain constant or even increase due to the addictive nature of the substance.
4. Psychological Factors: Individual preferences and psychological factors can also influence the applicability of the law of diminishing marginal utility. For example, some individuals may have a preference for variety and novelty, which means that the utility derived from each additional unit may not decrease as quickly.
It is important to note that these exceptions are relatively rare and the law of diminishing marginal utility generally holds true in most economic situations.
1. Giffen Goods: Giffen goods are inferior goods for which the demand increases as the price increases. In the case of Giffen goods, the law of diminishing marginal utility does not apply because the higher price actually increases the perceived value or utility of the good.
2. Veblen Goods: Veblen goods are luxury goods that are considered status symbols. The demand for Veblen goods increases as the price increases because their high price is seen as a sign of exclusivity and prestige. In this case, the law of diminishing marginal utility may not hold as the perceived utility of the good increases with its price.
3. Habit Formation: In some cases, the law of diminishing marginal utility may not apply if consuming a good or service leads to the formation of a habit. For example, addictive substances like cigarettes or drugs may not follow the law of diminishing marginal utility as the satisfaction derived from each additional unit may remain constant or even increase due to the addictive nature of the substance.
4. Psychological Factors: Individual preferences and psychological factors can also influence the applicability of the law of diminishing marginal utility. For example, some individuals may have a preference for variety and novelty, which means that the utility derived from each additional unit may not decrease as quickly.
It is important to note that these exceptions are relatively rare and the law of diminishing marginal utility generally holds true in most economic situations.
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