Marginal utility in the context of "Gossen's second law"

Overconsumption describes a situation where consumers overuse their available goods and services to where they cannot, or do not want to, replenish or reuse them. In microeconomics, this is the point where the marginal cost of a consumer is greater than their marginal utility. The term overconsumption is quite controversial and does not necessarily have a single unifying definition. When used to refer to natural resources to the point where the environment is negatively affected, it is synonymous with the term overexploitation. However, when used in the broader economic sense, overconsumption can refer to all types of goods and services, including artificial ones, e.g., "the overconsumption of alcohol can lead to alcohol poisoning." Overconsumption is driven by several factors of the current global economy, including forces like consumerism, planned obsolescence, economic materialism, and other unsustainable business models, and can be contrasted with sustainable consumption.

Defining the amount of a natural resource required to be consumed for it to count as "overconsumption" is challenging because defining a sustainable capacity of the system requires accounting for many variables. A system's total capacity occurs at regional and worldwide levels, which means that specific regions may have higher consumption levels of certain resources than others due to greater resources without overconsuming a resource. A long-term pattern of overconsumption in any region or ecological system can cause a reduction in natural resources, often resulting in environmental degradation. However, this is only when applying the word to environmental impacts. When used in an economic sense, this point is defined as when the marginal cost of a consumer is equal to their marginal utility. Gossen's law of diminishing utility states that at this point, the consumer realizes the cost of consuming/purchasing another item/good is not worth the amount of utility (also known as happiness or satisfaction from the good) they had received, and therefore is not conducive to the consumer's wellbeing.

Zero-sum game is a mathematical representation in game theory and economic theory of a situation that involves two competing entities, where the result is an advantage for one side and an equivalent loss for the other. In other words, player one's gain is equivalent to player two's loss, with the result that the net improvement in benefit of the game is zero.

If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero. Thus, cutting a cake, where taking a more significant piece reduces the amount of cake available for others as much as it increases the amount available for that taker, is a zero-sum game if all participants value each unit of cake equally. Other examples of zero-sum games in daily life include games like poker, chess, sport and bridge where one person gains and another person loses, which results in a zero-net benefit for every player. In the markets and financial instruments, futures contracts and options are zero-sum games as well.

Gossen's laws are three laws of economics that were articulated by Hermann Heinrich Gossen (1810–1858):

• Gossen's First Law is the law of diminishing marginal utility: that marginal utilities are diminishing across the ranges relevant to decision-making.
• Gossen's Second Law, which presumes that utility is at least weakly quantified, is that in equilibrium an agent will allocate expenditures so that the ratio of marginal utility to price (marginal cost of acquisition) is equal across all goods and services.

• Gossen's Third Law is that scarcity is a precondition for economic value.

William Stanley Jevons FRS (/ˈdʒɛvənz/; 1 September 1835 – 13 August 1882) was an English economist and logician.

Irving Fisher described Jevons's book A General Mathematical Theory of Political Economy (1862) as the start of the mathematical method in economics. It made the case that economics, as a science concerned with quantities, is necessarily mathematical. In so doing, it expounded upon the "final" (marginal) utility theory of value. Jevons' work, along with similar discoveries made by Carl Menger in Vienna (1871) and by Léon Walras in Switzerland (1874), marked the opening of a new period in the history of economic thought. Jevons's contribution to the marginal revolution in economics in the late 19th century established his reputation as a leading political economist and logician of the time.

Alfred Marshall FBA (26 July 1842 – 13 July 1924) was an English economist and one of the most influential economists of his time. His book Principles of Economics (1890) was the dominant economic textbook in England for many years, and brought the ideas of supply and demand, marginal utility, and costs of production into a coherent whole, popularizing the modern neoclassical approach which dominates microeconomics to this day. As a result, he is known as the father of scientific economics.

Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.

Although the central concept of marginalism is that of marginal utility, marginalists, following the lead of Alfred Marshall, drew upon the idea of marginal physical productivity in explanation of cost. The neoclassical tradition that emerged from British marginalism abandoned the concept of utility and gave marginal rates of substitution a more fundamental role in analysis. Marginalism is an integral part of mainstream economic theory.

Hermann Heinrich Gossen (7 September 1810 – 13 February 1858) was a German economist who is often regarded as the first to elaborate, in detail, a general theory of marginal utility.

Prior to Gossen, a number of economic theorists, including Gabriel Cramer, Daniel Bernoulli, William Forster Lloyd, Nassau William Senior, and Jules Dupuit had employed or asserted the significance of some notion of marginal utility. But Cramer, Bernoulli, and Dupuit had focussed upon specific problems, Lloyd had not presented any applications of theory, and if Senior provided a detailed elaboration of the general theory he had developed, he had done so in language that caused his applications of theory to be missed by most readers.