Saturday, December 15, 2012

Diminishing Marginal Utility

One of the core ideas of economics is diminishing marginal utility. The basic ideal is that the more you get of something the less pleasure you get from it.

The first car is marvellous. If you have two, it can be handy. Getting a third is not much advantage. A tenth auto would be almost a nuisance.

Sweets are another example. The first two or three are great. The next half dozen are nice. But the hundredth sweet does not give much pleasure.

The same applies to Christmas gifts. One gift is hugely better than no gift. Getting a second gift is great. After the fifth gift, the novelty wears off. When you receive the tenth gift, it is a bit boring.

Diminishing marginal utility says that the more that you purchase of a good, the less benefit you derive from purchasing more unit of it.

Concentrating all our gift giving on Christmas day diminishes the value of the gifts. When a child gets fifteen gifts on the same day, the pleasure from many of them is lost, because diminishing marginal utility sets in. If our gift giving was spread across the year, children would get more enjoyment from it.

Christmas is poor value for money.

1 comment:

Anonymous said...

I wonder if Solomon felt the same way about all those wives :D.