Economics & market laws · law 020
Law of Diminishing Marginal Utility
Also known as: Gossen's first law
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
what it means
Each additional unit of something gives less extra satisfaction than the one before.
How Law of Diminishing Marginal Utility works
The first samosa on a hungry evening is wonderful; the fourth is barely wanted. Customers value additional units less, which is why per-unit willingness to pay falls as quantity rises.
This underpins volume discounts, bundles, ‘second item half price’ offers, and why variety keeps customers coming back.
where it comes from
German economist Hermann Heinrich Gossen set it out in 1854. It became central to economics during the ‘marginal revolution’ of the 1870s, led by William Stanley Jevons, Carl Menger, and Léon Walras.
Law of Diminishing Marginal Utility examples in business
Bundles
A café offers a second coffee at 50% off — the customer values it less, so a lower price makes the extra sale happen.
Subscriptions
A streaming service keeps adding new content because the hundredth episode of the same show adds little value.
Feature bloat
Adding a 30th feature to software gives users far less value than the first five did.
How to apply it
- 1Price extra units lower than the first to capture purchases customers would otherwise skip.
- 2Use variety and rotation to reset satisfaction.
- 3Focus product development on the features that add the most value first.
- 4Avoid assuming that more of the same will keep delighting customers.
common misreading
It does not hold for everything — collectors and addictive products can show the opposite pattern for a while.
ask yourself
Where are you offering customers more of the same when they would value something different?
put it into practice
Frequently asked questions
What is Law of Diminishing Marginal Utility?
Each additional unit of something gives less extra satisfaction than the one before. The first samosa on a hungry evening is wonderful; the fourth is barely wanted. Customers value additional units less, which is why per-unit willingness to pay falls as quantity rises.
Who came up with Law of Diminishing Marginal Utility?
German economist Hermann Heinrich Gossen set it out in 1854. It became central to economics during the ‘marginal revolution’ of the 1870s, led by William Stanley Jevons, Carl Menger, and Léon Walras.
How do you apply Law of Diminishing Marginal Utility in business?
1. Price extra units lower than the first to capture purchases customers would otherwise skip. 2. Use variety and rotation to reset satisfaction. 3. Focus product development on the features that add the most value first. 4. Avoid assuming that more of the same will keep delighting customers.
What is a common misunderstanding of Law of Diminishing Marginal Utility?
It does not hold for everything — collectors and addictive products can show the opposite pattern for a while.