Law of Diminishing Marginal Utility
I got on the subject of Law of diminishing Marginal Utility with The Wife today, a theory which I was able to explain to her today in english. Despite it being an economic theory (read: usually hard) it is quite easy to understand. First thing is first - utility means satisfaction. Investopedia defines the Law of Diminishing Utility as,
A law of economics stating that as a person increases consumption of a product – while keeping consumption of other products constant – there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
This post begs the obvious question is, “How the hell did this come up with your wife?” Well today we had pizza in the city (People from Long Island and NJ refer to NYC as ‘the city’) and it was the thin crust kind of pizza that you can eat tons of. Well, the Wife and I were STARVING as we jetted out of work to the city to visit my father in the hospital. So when we got to the restaurant we inhaled our food!
Inevitably, and anyone who has an 8 year old, whenever the Wife eats fast, and in large quantities (for her!), her stomach hurts. I really have to emphasize the quantity part both because this main point of the post and in reality this woman barely eats anything LOL – look at her site…that is actually her in the pic she is tiny.
Well her utility (read satisfaction) with each subsequent slice was less than the previous slice. Read the sentence again, her utility with each subsequent slice was less than the previous slice. LIGHT BULB! That is it…that is the Law of Diminishing Marginal Utility.
Law of Diminishing Marginal Utility and Debt Repayment
You should be thinking, “well My Journey thanks for the Economics 101 lesson, but what does this have to do with debt repayment?” Well the answer is simple yet complex,
The Law of Diminishing Marginal Utility doesn’t Apply to Debt Repayment
Woah, am I going against Economic Doctrine? I might be, which is why this may just be the tip of the iceberg for this topic. Lets took a look at the graph I found on Wikipedia – It clearly shows that while the quantity of a good or service increases the less utility I get out of that last unit supplied (there is a separate theory that says eventually the total utility not just marginal will go down too – ignore that)
Well this leads me to the point that this theory doesn’t apply to Consumer Credit available. Every unit (dollar) I free from the grasp of Visa, American Express, Discover, BofA, HSBC, etc. makes me that much happier – it provides me that much more satisfaction! Take that Austrian School of Economics…
Give me some feedback, whether academic or not, I know this isn’t your normal post you find here or other personal finance blogs but I need to know if I am going crazy!