Law of

Diminishing
Marginal Utility

By – S. Dhananjayan
 INTRODUCTION
• The law was given by a German
economist H.H. Gossen known as
“Gossen’s first law of consumption”.
• Later it was further developed by Alfred
Marshall, a British economist, observed
that as you accumulate more of
something, your desire for it decreases.
Economists refer to this phenomenon as
“diminishing marginal utility”.
 Cardinal Measurement of Utility: Satisfaction is
measured in quantitative terms.

Consumption in Reasonable Quantity: Ex- glass

of water not spoonful of it.
Assumptions of
Continuous Consumption: Consumption done is
Law of continuous basis.
Diminishing
Marginal Utility No Change in Quality: The quality of a commodity
remains the same.

Rational Consumer: Consume who can

measure, calculate and compare the utilities of different
commodities.
LAW OF
DIMINISHING
MARGINAL
UTILITY

• Law of Diminishing
Marginal Utility states
that as we consume more
and more units of
commodity, the utility
derived from each
successive unit goes on
decreasing.
• The law states that when a consumer
consumes a particular commodity
over a particular period of time the
utility derived from each successive
units or additional units keeps
diminishing and at a certain level, it
may fall and become negative.
EXAMPLES OF
LAW OF
DIMINISHING
MARGINAL
UTILITY
DIAGRAMATIC EXPLANATION OF LDMU

Units of Apple Total Utility Marginal Utility

0 0 -
1 20 20
2 35 15
3 45 10
4 50 5
5 50 0
6 45 -5
7 35 -10
 GRAPHICAL
REPRESENTATION
LIMITATION OF LAW OF DIMINISHING
MARGINAL UTILITY

1. Discontinuous Consumption of Units

2. Luxury goods are not taken into consideration
3. Not Universally Applicable
4. Irrationality of the Consumer
 CONCLUSION
• The law of diminishing marginal utility predicts how
consumers will react to a certain level of supply. As they
consume more units of a single type of good, the utility of
each unit will decrease until the consumer doesn't want
anymore.
• Businesses can use the law of diminishing marginal utility to
understand consumer behavior, price their goods and
services, and diversify their offerings.