Law of diminishing marginal utility

• One of the most important proposition of MU approach to

demand.

• According to Marshall, “the additional benefit, which a

person derived of a given increase of a stock hence
diminishes, being all other goods being held constant.”

• Law describes that, we obtain less and less utility from

the successive unit of a commodity as we consume
more and more of it, other things remaining same.
 Explanation to law:-
• As the consumer consumes more, his total utility will increase but at a decreasing

Rate. It is natural, that when a consumer consumes additional units of a particular

Good at a point of time, his desire for every successive unit become less intense.

- A fundamental feature of wants which is that, every wants need to be satisfied only

up to a limit. After this limit is reached, the intensity of our wants becomes ZERO.

- This position is called complete satisfaction, i.e. as e consume more and more

units of a commodity to satisfy our needs, the intensity of our wants become less &

less.
Quantit TU MU
y
O 0 0
1 9 9
2 16 7
3 21 5
4 24 3
5 25 1
6 24 -1
7 21 -3
Thus the figures shows:-
• Before a point of full satisfaction TU increases, but MU
continues to decrease.

. At the point of full satisfaction, TU starts decreasing,

while MU becomes -ve.
 Assumptions to DMU :-

1. Various units of the good are homogeneous.

1. There is no time gap between consumption of the different units.

2. Consumer is rational (i.e. knows everything about , maximizes

utlity)

3. Taste, preferences and fashion remain unchanged.

 Limitations of Utility analysis :-
• All goods under consideration are homogeneous, both qualitatively
as well as quantitatively.

• Tastes, habits, fashions and income of consumer remains

unchanged.

• Consumption need to be a continuous process. units has to be

consumed in succession.