How does the principle of diminishing marginal utility explain the price we pay for another unit of good or service?

In economics, the law of diminishing marginal utility states that the marginal utility of a good or service declines as its available supply increases. Economic actors devote each successive unit of the good or service towards less and less valued ends. The law of diminishing marginal utility is used to explain other economic phenomena, such as time preference.

Whenever an individual interacts with an economic good, he or she necessarily acts in a way that demonstrates the order in which he or she values the use of that good. Thus, the first unit of a good is dedicated to the individual's most valued end, the second unit is devoted to the second most valued end and so on.