does the Law of Diminishing Marginal Utility apply to money?

Answer 1

Yes, if what you're asking is in any way related to "future value" or the "time value element."

Future Value:

As inflation, interest, and international monetary exchange rates fluctuate, so does the value of a dollar bill in your hand.

It is presumed that the value of a dollar held in hand will diminish in value over time, primarily due to inflation, and inherits a negative future value.

A dollar that is invested to where it earns interest, if that interest exceeds inflation, that dollar has a positive future value.

If an investment is tied to a fixed rate of return, such as with bonds or other loan instruments, that fixed rate inherits a higher risk of generating a negative return (when compared to potentially higher rates of return in the future marketplace) the longer the term of the agreement.

The Time Remaining Element:

On the same token, for instruments offering a variable rate of return, such as stock options and commodities, the closer you get to the expiration date for such positions, aside from actual increases or decreases of the stock or commodity, they will lose the time element portion of their value. I.e., a new option has a better probability of passing through a valuable position than one that is about to expire.

Not sure if this answers your question, as the term you offer (Law of Dimishing Marginal Utility) is one that I've not heard before, but "future value" and "time values" for securities options are something that I am familiar with.

Answer 2

Absolutely. In fact I think the utility of wealth, at least over normal ranges, may be one of the most elastic utility curves.

Think about this question:

If you made $1.5M a year, would you be willing to move to a dangerous war torn foreign country to make $2M?

Now think about the same question but you make $25,000 and the new job will pay $525,000.

Although both situations havea similar raise, $500,000, there are different thoughts going through your mind when you think of the two different questions. This is because the extra money doesn't mean as much when you are already making over $1M. This is a classic example of the law of diminishing returns.

Answer 3

True as Scott said. Also in social behavior stand point, having more and more money does not make anyone any happier and happier. As a matter of fact a lots of wealthy people are absolutely miserable.

Looking at Marlow's hierarchy of needs, money will buy safty, food, lodging, may be even family or friends (but only up to certain degree). Beyond that, the utility of money drops drastically

Answer 4

I would say no, if I'm taking an Econ quiz. Here's why: the LoDMU applies to "consumption of a product"

Money is not a product. These days, most everyone uses "fiat money" which does away with the need to represent a physical commodity and takes on its worth the same way gold did: by means of people's perception and faith.

Now, in common sense terms, I'd say "yes" because if you have a billion dollars, a billion + 1 is no big deal. But if you have no money, 1 dollar is a big deal.

Answer 5

The diminishing return of money is in a closed equipment, consequently the Latin word "ceteris paribus" applies with the intention to close the equipment with the intention to learn it. The equipment you're speaking approximately is open. human beings have friends and better united statesthan themselves. those could be labeled as a type of externality. while you're making 100k and characteristic friends that make 250k, then you definately are open to extra application. while you're making 25k and can't have sufficient funds what others at 45k could purchase, as a replace of finding a thank you to make 45k, maximum will purely max out their credit to stay like they make 45k. In a closed equipment, despite quantity which you're making could unquestionably be labeled in a diminishing way with the aid of fact there is not any benchmark to evaluate it to. In a feeling, you will possibly in no way be attentive to that diminishing returns existed or that they prepare to in any respect.