LAW OF MARGINAL BENEFIT

BY: MOHIT PANCHAL 15001515006MCRM 1ST YEAR

WHAT IS MARGINAL BENEFIT ?

• The additional satisfaction or Benefit that a person receives from consuming an additional unit of a good or service.• A person's marginal Benefit is the maximum amount they are willing to pay to consume that additional unit of a good or service. • In a normal situation, the marginal Benefit will decrease as consumption increases.

BREAKING DOWN MARGINAL BENEFIT

•For example, assume there is a consumer wishing to purchase an additional burger. If this consumer is willing to pay $10 for that additional burger, then the marginal Benefit of consuming that burger is $10. The more burgers the consumer has, the less he or she will want to pay for the next one. This is because the Benefit decreases as the quantity consumed increases.•It is important to note that even though the consumer is willing to pay $10 for the burger , this will not necessarily be the burger's price; this is determined by market forces. The difference between the market price and the price the consumer is willing to pay is called  consumer surplus.

Law of Diminishing Marginal Benefit

Law of Diminishing Marginal Benefit - eventually, a point is reached where the marginal Benefit obtained by consuming additional units of a good starts to decline, ceteris paribus.

Law of Diminishing Marginal Benefit

Example• If I’m really hungry, I get a lot of

satisfaction from first slice of pizza.• If I keep eating pizza, the satisfaction from

the 8th slice would be much less than that of the first slice.

Law of Diminishing MB

Notes about the Law of Diminishing MBTime period must be specified for law. Law tells us that eventually the

marginal Benefit curve will be downward sloping.

Law tells us that eventually the total Benefit curve will become “flatter.”• Slope of the total Benefit curve is equal to

marginal Benefit

Marginal Benefit

MB

QMU

Shape of MBEventually downward sloping

• Law of diminishing marginal Benefit

Positive always• Rational behavior

Consumer only purchases a good if they get some positive Benefit from it.

Total Benefit

TU

Q

TU

DTU

DQ

DTUDQ