The Concept Of Law Of Diminishing Marginal Utility

The Concept Of Law Of Diminishing Marginal Utility 

Introduction:

The law of diminishing Marginal Utility was first stated by the H.H Gossen in 1854 and later it was developed and popularized by Alfred Marshall. This law is based on the common experience of every consumer.

Explanation of Law:

This law explain the relationship between the quantity of a commodity and its utility. The law states that if the consumer increases the consumption of any particular commodity, the marginal utility or the satisfaction derives from that commodity decreases continuously.

Assumptions:

This law is based on following assumption. They are as follows

• Utility measured and compared numerically.
• Consumer is a rational being which means he/she always tries to get maximum satisfaction.
• There should be no gap between the consumption of one unit and the another unit.
• All units of commodity are in identical quantity,taste and size.
• The unit of commodity should not be too long or too small. They must be in reasonable size.
• The income and the taste of the consumer should be constant.
• The commodity is divisible in to small units
• Price of the commodity should remain constant 

The law of diminishing marginal utility can be explained with the help of the following table

                          

NO of Apples	Total Utility	Marginal Utility
1	20	20
2	35	15
3	45	10
4	50	5
5	50	0
6	45	-5
7	35	10

Total Utility:

The total amount of satisfaction which a person derives from the consumption of all units of the commodity is called total utility

Marginal Utility:

The additional utility derived from the use of an additional unit of good is called marginal utility 

                               

                                                              MU=TU_2­-TU₁

_{In the above table when the number of apples consumed increases the total utility increases up to fifth apple and then it diminishes but the marginal utility diminishes continuously} 

Limitation:

• This law will not apply in the case of money because the MU of money never decreases.
• The law is not applicable for durable goods because we can use them for a longer time 
• This law is not applicable for the complementary goods

Conclusion:

 Despite of the above limitations the law of diminishing marginal utility has a great theoretical and practical in economic analysis.