Law of Diminishing Marginal Utility :
(A) Introduction :
The law of diminishing M.U. explains economic behaviour of a rational consumer. The law was first proposed by Prof. Gossen and further explained in detail by Prof. Alfred Marshall in his book "Principles of J economics" published in 1890. The law of DMU is universal in nature. It indicates common consumer’s behaviour that Marginal Utility diminishes with reduction in the intensity of want.
(B) Statement of the Law :
According to Prof. Alfred Marshall,"Other things remaining constant, the additional benefit which a person derives from a given increase in his stock of a thing, diminishes with every increase in the stock that he already has".
In simple words, law of DMU can be stated as follows :
"Other things being the same, MU goes on diminishing with every successive unit of a j commodity consumed."
Thus, the law of DMU explains that, the more of a thing you have, the less you want to have more of it.
In short, as consumption of identical units of commodity increases, MU diminishes.
(C) Assumptions of the law of DMU :
Assumptions are those conditions which are necessary for the validity of the law.
They are as follows :
- Cardinal Measurement : The law assumes that utility can be measured cardinally i.e. in numbers. So, it is possible to express and compare the utility derived from each unit of commodity consumed.
- Homogeneity : It is assumed that all the units of commodity consumed are homogeneous or same. They are identical in case of size, shape, taste, colour, flavor, etc.
- Rationality : A consumer is assumed to be rational. His behaviour is normal from economic’s point of view. It means, he tries to get maximum satisfaction.
- Continuity : All units of commodity are consumed successively, one after another, without time interval.
- Reasonability : The law assumes that, all the units of commodity consumed are reasonable in size. The unit of measurement is neither too big nor too small e.g. a cup of tea, glass of water, etc.
- Divisibility : A commodity is assumed to be divisible. So it is possible to divide the units of commodity in a proper size.
- Constancy : It is assumed that related factors like income, taste and preference, habits, choice of a consumer remain constant. MU of money is also assumed to be constant.
- Single want : A given commodity is used to satisfy a single want of a person. So that it is possible to experience full satisfaction from a single want.
- Schedule and Diagram :
The law can be explained with the help of following schedule and diagram :
| Units of Commodity |
Marginal Utility (M.U) |
| 1 |
10 |
| 2 |
8 |
| 3 |
6 |
| 4 |
4 |
| 5 |
2 |
| 6 |
0 |
| 7 |
-2 |
The above given schedule shows that MU goes on diminishing with an increases in units of commodity consumed.
Graphical Presentation :
In the above given diagram, X-axis indicates units of commodity and Y-axis measures marginal utility.
Various points are plotted on the graph which indicates MU derived from each unit of commodity consumed.
When all these point are joined, we get MU curve. It slopes downward from left to right. It shows that MU diminishes as consumption of a commodity increases.
The shaded portion of the diagram shows negative utility. It is because, beyond a certain level, further consumption of a commodity results into disutility.
(E) Exceptions to the law of Diminishing M.U. Exceptions are those cases for which the law is not applicable.
They are as follows :
1. Hobbies
2. Miser
3. Addictions
4. Power
5. Money
6. Reading
They are explained as under :
(1) Hobbies : The law of DMU is not applicable in case of collection of stamps, coins, rare paintings, etc. It is because, when its stock increases, M.U. may increases because it gives more and more satisfaction. However, it violates the assumptions like homogeneity and continuity.
(2) Miser : For a miser, every additional rupee gives him more and more pleasure. So, when the stock of money increases, MU of money tends to rise.
However, the behavior of a miser is irrational. It violates the assumption of rationality.
(3) Addictions : It is said that, the level of intoxication increases for drunkard with every additional consumption of liquor. It may increase MU for him.
This condition is similar to most of the addictions.
Here again, the assumptions like rationality and continuity are violated.
(4) Power : It is an exception to the law of DMU because, when a person acquires power, his craze for power increases MU from power. As a person gets power, he desires to have more and more of it. But, it violates the rationality, assumption.
(5) Money : Money is used as a medium of exchange. It helps to buy goods to satisfy human want. So MU of money increases with an increase in its stock.
MU of money never becomes zero. The law holds true to money too. MU of money declines slowly as its stock increases. So MU of money is more for poor than rich people.
(6) Reading : When a person reads more and more, he gets deeper and deeper knowledge so MU of reading tends to increase. Similarly the law does not hold true in case of music, dance, etc.
However, assumptions like continuity, homogeneity, etc. are violated. The law of DMU is universal in nature. These cases are not real exceptions as they violate some assumptions. So, it is said that, there are no real exceptions to the law of DMU.
