Law of Diminishing Marginal Utility :
The law is given by H. H. Gossen, and Alfred Marshall.
Statement of the Law :
The law states that “as
the amount consumed of a commodity increases, other things remain constant, the utility derived by the consumer from the additional units i.e. marginal utility goes on decreasing.”
In other words, “the additional benefit a person derives from a given increase in his stock of a thing, diminishes with every increase in the stock that he already has.”
The law of Diminishing Marginal Utility is graphically illustrated in the given figure —
TU curve, which is concave from above, and the negatively sloping MU curve illustrate that as the consumer consumes more and more units of a commodity, marginal utility from each successive unit goes on decreasing.
- All the units of a commodity must be same in all respects – in size, colour, design, quality etc. For example, if the quality of the second mango is superior than the first, the consumer may derive more utility from second mango than from the first.
- The unit of the good must be standard, e.g., a cup of water, a bottle of cold drink, a pair of shoes, a glass of water. The units of the commodity should not be too small or too large otherwise the law will not hold.
- There should be no change in taste during the process of consumption. If a consumer’s taste changes so that he or she tends to like a commodity more, the marginal utility of additional unit of the commodity may rise.
- There must be a continuity in consumption and if a break in the continuity is necessary, the time interval between the consumption of the two units must be short. If a person consumes the first mango now and gets some utility from it and consumes the second mango after a couple of hours, he may get more utility from the second mango because his hunger may have increased meanwhile.
- There should be no change in prices of substitute goods. If the prices change, it may become difficult to have an idea about the utility that the consumer might get from the main commodity.
- The utility is measurable.
- The consumer is rational while taking consumption decisions.
- Marginal utility of money is assumed to be constant.
- As more and more quantity of a commodity is consumed,the intensity of desire decrease, and therefore the utility derived from the additional unit decreases.
- If there are many uses of a commodity, the most urgent requirement will be fulfilled first, followed by the next important use and so on. E.g., if limited electricity is available it may be used for lighting only, if more electricity becomes available, it may be used for less important use like cooking.
- Thus marginal utility of electricity diminishes as electricity is being used for less important uses.