A Small Peek into Big Bs Car Collections: Does Law of Diminishing Marginal Utility Hold Good?

Car Prices Rolls Royce Phantom Bentley Continental GT Mercedes S350 BMW 7 Series Porsche Cayman Range Rover Mercedes E Class Lexus LX470 Ford Mondeo Mercedes SL500

*(INR) 35,000,000 16,500,000 7,784,849 7,360,000 5,000,000 3,922,500 3,793,399 1,955,000 1,492,000 1,300,000

CONCEPT OF MARGINAL UTILITY

The additional satisfaction or benefit (utility) that a consumer derives from buying/Consuming an additional unit of a product or service for a given period of time .
Units Total Utility Marginal Utility 50 40 30
1st Glass 2nd Glass 3rd Glass 4th Glass 5th Glass 6th Glass 20 32 40 42 42 39 20 12 8 2 0 -3

Total Utility

20 10 0 -10 1 2 3 4 5 6

Marginal Utility

Law of Diminishing Marginal Utility

As a consumer consumes more and more units of a specific commodity, the utility from the successive units goes on diminishing

The Law is based on Three Facts :

o

Total wants of a Consumers are unlimited but each single want can be satisfied

o The marginal utility of money is constant given the consumers wealth.

o Different goods are not perfect substitutes for each other in the satisfaction of various particular wants

LUXURY GOODS AND MARGINAL UTILITY

o Acquire of more and more money intends a person to acquire more comfort and luxuries o Want for branded goods like Gucci , Chanel , Rolex , Cartier , Versace , Prada ,Ray-Ban , Mulberry , Valentino etc. which increases status , lifestyle will never diminish.

o Likewise big b , Vijay Mallya is also about cars and has more then 50 cars o Neil Nitin Mukesh (Film Actor) love for branded watches

o Mahendra Singh Dhoni is fascinated about bikes. He has more then 22 bikes and want to purchase more and more.

o Kareena Kapoor is fascinated about handbags.

o All these purchase are differ in brands , characteristics , looks and are not made in one go which intends buyer to purchase more and more.

ADDICTION
SMOKING:o How much cigarette does Shahrukh khan smoke daily?
o What happens to the marginal utility of an active smoker?

ALCOHOL AND DRUGS:o Loses the power of reasoning.

o Addition by one unit for them increases the utility. GAMBLING:o Buying lottery tickets, entering football pools, and betting on horse races.

o Whether a person loses or wins , his marginal utility will always increase.

PERSONAL HOBBY
In case of hobby like Stamp collection , Coin collection etc. also this law cannot operate. For example the person who has a hobby of collecting coins gets more satisfaction if one more coin is added to his/her collection.

Desire of Knowledge
Some experts say that man wants to get more and more knowledge so the law cannot be applied in this case

Exceptions involving sportsmen and the fan following in sports and sporting events.
SACHIN TENDULKAR
o Although most number of matches played and most number of run scored by him in the game. Still his hunger and thirst for playing cricket has not diminished but is on the rise

MICHAEL SCHUMACHER
o Famous for his eleven-year spell with Ferrari and being Seven time world champion , regarded as one of the greatest F 1 Drivers of all times. He retired from the sport in 2007, but made a return in 2010 just for the passion he has for racing.

ROGER FEDERER
o Federer has won a men's record 16 Grand Slam singles titles In the days when he used to win in and out, his fans never got tired of seeing him victorious

INDIAN PREMIER LEAGUE

o Even after a dose of over 40 days of cricket the 4th season of IPL managed to grab hold of about 19.7 million viewers for its inaugural game

FIFA WORLD CUP / ENGLISH PREMIER LEAGUE

o The FIFA World Cup has recorded a staggering growth in their TV viewership with about 24.8 billion viewers in the year 1998 to 28.8 billion in 2002 with the 2010 world cup being the most watched event in the history of sports Entertainment o The English Premier League, which previously had loyal fans mostly in Europe is itself attracting a huge amount of global fan following each year and the fans never seem to get enough of it.

Technological advancement an exception to the law

Mobile phone
o Increasing number of features has increased marginal utility. o Carsten Tews (Germany) has 1,563 different mobile phones, which he has collected since 1998.

Computer software
o We started with DOS with almost no features, still our utility was high o Then followed the era of windows operating systems o The marginal utility is always increasing

INCOME AND INVESTMENTS

INCOME
o The desire for earning never decreases . As income of the individual increases the utility for earning more and more income also increases.

MISERS:
The law does not hold true in case of persons like misers. The miser gets increasing marginal utilities from additional units of money, as the more money he has, the greater is the desire to acquire more of it. Even here, it is difficult to believe that the marginal utility of the thousandth rupee is more than that of the first rupee.

INVESTMENT IN STOCK EXCHANGE

o There are many individuals who invest in stock market in various Financial instruments such as Shares, Bonds, Mutual Funds, etc., and with a wide portfolio. Their utility of investing never decreases but rather increases with an objective of earning more profit.

INVESTMENT IN GOLD AND SILVER

o Gold and Silver is regarded as a store of value ,whereas stocks are regarded as a return on value. It has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries. The prices of these metals has increased since over the last few years because individuals are purchasing more and investing in these precious metals

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