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Diminishing marginal utility of money means that each additional dollar spent results in a smaller increase in quality of life. This is true of all consumption
by lottin 5y ago
Diminishing marginal utility of money means that each additional dollar spent results in a smaller increase in quality of life. This is true of all consumption goods. For example, if you don't have a car, and you buy a car, your quality of life will improve a lot. If you buy a second car, it will improve only little. By the time you have 15 cars in your garage, buying another car will do nothing to improve your quality of life, or it could even worsen your living conditions.
- giantg2 5y agoYes, but that wasn't what was explained. "Money also has diminishing marginal utility, so as you accumulate more of it, at some point it has less use." The additional money does not have less use. It's just not going to add as much to quality of life. There are still many uses for it.
- whimsicalism 5y agoThe word utility is being used in a fashion different from your lay understanding.
- giantg2 5y agoMaybe you can tell me what you think it means and what I think it means then. Investopedia and my work in finance both seem to support my take.
- whimsicalism 5y agoSure. Utility, in this sense, is a proxy for the enjoyment/satisfaction gained by the consumer from the thing. You seem to be interpreting utility in terms of the quantity of things the money can be used for or in terms of the societal benefit that can be obtained from the money, it is not entirely clear.
- giantg2 5y ago"Money also has diminishing marginal utility, so as you accumulate more of it, at some point it has less use." This thread is in response to this, to point out that the use of money is not the same as the marginal utility. Its mot like having a bunch of money makes it less useful or have fewer uses.
- whimsicalism 5y ago> use of money is not the same as the marginal utility Yes, but as I said above, in this case having use is defined relative to promoting your own satisfaction as a consumer. I think you are trying to tease apart "utility" vs "use", but to have utility is the property of having use. It's a question of what the utility/use is in reference to, and for economists, that utility is in reference to preference satisfaction by the consumers.
- giantg2 5y agoAnd even when using that definition, it doesn't mean there is less use. It will add marginal use for each addtional dollar, and increase overall use.