Glamor Economics

Chapter 41

Chapter 6 Section 4 The Last Bowl of Soup Is the Worst to Drink——Diminishing Marginal Utility
A man was hungry and went to buy bread to eat.He bought a cake and ate it quickly, but he was still very hungry.So, he ate the second and the third one after another... After eating six loaves in a row, he still didn't feel full.So I bought the seventh cake, and after eating half of it, I felt full.At this time, he was very remorseful, and slapped his mouth with his hand and said, "Why am I so stupid and don't know how to save money! If I had known that half a cake would be enough to eat, then I would just buy this half cake, and the first six Didn’t you eat too much cake?”

Although such a story is a joke, it reveals an important concept in modern economics-margin.Margin is a commonly used term in economics, generally referring to the meaning of addition. The marginal concept that appeared in the early 19s is the origin of western economics since Adam?A very important change since Smith.Economists use it as a theoretical analysis tool that can be applied to anything measurable in the economy.Just because this analysis tool deviates from the traditional analysis method to a certain extent, some people call it "marginal revolution".

Menger, a representative of the marginal school, believes that value depends on people's subjective evaluation of the utility of goods.So how is the amount of value, that is, the amount of subjective utility determined?In order to answer this question, Menger introduced a marginal concept in the subjective utility analysis.When he investigated the measurement problem of value scale or value quantity, he extended the law of determining the value of commodities by the quantity of marginal utility, which was the first to make a clear statement.In order to deepen the understanding of the concept of margin, let me first talk about a simple example.

Krylov of Russia wrote a fable "Demian's Soup".It is said that there is a man named Jamian, who makes very delicious fish soup, and he himself is proud of it.Once, a friend came to visit him, and he made a delicious fish soup for the friend, "floating with a layer of oil, like amber", filled with "sturgeon fillets and offal".The friend quickly finished a bowl, and when the friend just put down the bowl, Jamian brought the second bowl.The friend chatted with him while drinking, and soon the second bowl was also eaten.In order to show his enthusiasm, Jamie Yang filled the third bowl. The friend really didn't want to drink it, but couldn't bear his enthusiasm, and finally finished it reluctantly.When he saw Jamie Yang brought out another bowl of soup, the friend finally ran away in fright, and never dared to visit Jamie Young's house again.

Why did Jemian entertain his friends with delicious sturgeon soup, but made them afraid to visit his house again?For this guest, when drinking the third bowl of soup, compared with drinking the second bowl of soup and the first bowl of soup, his sense of satisfaction is decreasing in turn.This is the law of diminishing marginal utility.The marginal school believes that people cannot satisfy all their desires with limited resources, and they can only allocate according to the importance of desires.The most important and the most important are satisfied first, and the least important and least meaningful desires on the edge are satisfied last. It is the desire that is the first to give up as resources decrease. This desire is the marginal desire. The ability to satisfy this marginal desire is marginal utility.

Marginal theory holds that what determines the value of an item is not its maximum utility, not its average utility, but its minimum utility, which is determined by its marginal utility.

[links to related words]

Marginal Utility Marginal is a key term in economics, often referring to the added meaning.Marginal utility refers to the newly increased utility that consumers get from consuming one more unit of a commodity.

The law of diminishing marginal utility refers to the law that when a commodity is consumed more and more, its marginal utility decreases.The simplest example of this law is that when a person eats a meal, when he is hungry, the utility of the first bite is the greatest, and every subsequent bite, the increased utility will be smaller and smaller, and when he is full, if he eats again , the utility is negative.

The equal-margin law means that when a consumer's income is fixed and he is faced with a given market price of various items, the marginal effect of the last dollar spent on any item is exactly equal to that spent on any other item. The consumer gets the greatest satisfaction or utility when he gets the marginal utility of the last dollar on the market.

(End of this chapter)