‘Economics is the study of mankind in the ordinary business of life’

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From this quote by Alfred Marshall , we have indeed come a long way in this field of study, yet that line still stands true in our daily lives. When I was very young, I would often hear all this economic jargon like GDP, inflation, interest rates, etc, on the news. As a child, I used to think that these economics-related stuff was for older people. Then came a point where I thought that this stuff was so complicated that it was not meant for a layman. But soon, I understood that economics was already innate in one’s life.

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As Economics students, one of the first concepts we learn in microeconomics is the ‘Law of Diminishing Marginal Utility’. By definition, the law of diminishing marginal utility states that the satisfaction or utility derived from consuming an additional unit of a good or service decreases as more and more units are consumed. Definition-wise, it may seem like a complex economic principle. You may even have gained enough insight into it from an academic point of view. But most people would be surprised to know just how much it applies to all of us. Its effects can be observed in various everyday situations. Imagine you are having a very bad craving for something sweet for a really long time. At that moment, you get chocolate in front of you. Just think of how great that moment would be, where you’re satisfying all your cravings, But a single chocolate does not do it for you feel like you need another, and that’s what you do. Slowly, you go through one chocolate after the other, but your enjoyment gradually decreases. By the time you have your fifth or sixth chocolate, the satisfaction you get from that chocolate wouldn’t be as much as when you ate that very first chocolate. If you continue eating, you will soon reach your peak, and even one extra chocolate would make you sick. This is essentially what the law of diminishing marginal utility says - the first few chocolates are more satisfying than subsequent ones, highlighting that the marginal utility of each additional chocolate diminishes. It’s a simple phenomenon that every chocolate-lover (even me) always knew: too many chocolates at a go was never nice.

 

A similar instance would be when you’re thirsty; the first sip of water provides significant relief and satisfaction. As you continue to drink, the marginal utility of each additional sip decreases. After a certain point, your thirst is quenched, and the satisfaction from drinking more water diminishes. When we see simple things translated in such terms, we realize that economics is already part of everyone’s lives. Allocation of one’s scarce means to attain maximum satisfaction is something each of us deals with daily. It is very much an integral part of our life, knowingly or unknowingly, be it the government or an individual. There are more examples of the law of diminishing marginal utility being a part of our lives, and analysing them can give us deeper meanings into what we consider to be mundane scenarios. 

 

As students, we all face this problem: when we start studying a subject or a particular topic, the initial hours of focused study can be highly productive and rewarding. We can grasp new concepts, make connections, and feel a sense of progress. However, as we continue to study for an extended period, we feel bored and tired. Something else becomes more exciting or rewarding to us. The marginal utility of each additional hour of study diminishes here and makes us feel tired. Diminishing returns set in, reducing the overall effectiveness and satisfaction derived from additional study time. The same logic applies to any new activity we start. Many students participate in extracurricular activities such as joining societies, clubs or sports. The first few instances of engaging in these activities can be exciting and enjoyable, providing new experiences and opportunities for growth. However, as students participate in these activities more frequently, the novelty of it all dies down.

 

We all know that first years are always more enthusiastic when it comes to these when compared to seniors. The marginal utility of each additional activity may diminish here as we become more accustomed to the experience. Even if you go for competitions, your very first win would be gratifying, but with each successive win, you may still be delighted, but that feeling would not be the same as the thrill you had the first time. Even if you gain fame and money, I would say even the novelty of winning would decrease over time. In a different scenario, consider someone struggling to make ends meet when it comes to their basic needs like food, shelter, and clothing. The first few units of these necessities significantly impact their well-being and satisfaction.

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However, as they acquire more of these essential goods, the marginal utility of each additional unit diminishes. For example, for someone who did not have shoes, getting their first pair would give unimaginable happiness. But, if the same person reaches footwear number 20, it would not mean much to that person.

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The impact it has on them would definitely be way lesser than the first pair. For individuals with limited financial resources, acquiring a specific possession or material good they desire can bring them significant satisfaction initially. But, as they accumulate more of these possessions, the marginal utility of each additional item diminishes. They may even struggle with storage spaces or find it challenging to maintain and utilize many possessions. For people with limited financial resources and limited access to healthcare or education, would reap significant benefits and improve their quality of life when they receive an opportunity to access these services. However, as they gain more access to these services, they reach a point where their basic needs are adequately met.

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Hence, the law of diminishing marginal utility helps explain why the satisfaction we derive from consuming or possessing additional units of a good or service tends to decrease as we acquire more.

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Thus, economics is part of our lives in more ways than we think. Economics, when it comes to academia, is a subject that genuinely influences life and one that equips its learner with the skills to analyse, research, and write about a wide array of financial and regional economic issues. It enables us to understand social interactions and make sense of our complex surroundings. One can also understand how people use scarce means to produce goods and satisfy wants. Economics also delves deeper into causes of global issues like inflation, unemployment, perpetual poverty, market movement, climate change, etc., and helps suggest efficient, valuable insights and solutions. Yet, even a layman uses it, even at a personal level, to get the best results.