Law of diminishing marginal utility states that the utility of each successive unit goes on diminishing as more and more units of a commodity is consumed, when units of other commodities remains constant.
Assumptions :
– Rational behaviour of consumer.
– Cardinal measurability of utility.
– Utility can be measured by money and marginal utility of money remains constant. – Income and mental status of consumer are assumed to be remains constant during the act of consumption .
– Price of commodity, price of other commodities, income of consumer and other factors that can affect the utility are assumed to be remain constant.
Explanation of the law : Initially as the consumer increases the consumption marginal utility decreases but it is positive (as in our example from first to third unit of the commodity marginal utility decreases from 6 to 2) After certain units consumer reaches to a point where utility from additional unit becomes zero or marginal utility curve intersects the X axis (as in our example at fourth unit of the commodity marginal utility becomes 0). This represents the point of complete satisfaction. If consumer further increases the consumption of the commodity then utility derived from additional units will becomes negative means the consumer is deriving negative utility or disutility from the additional units of the commodity (as in our example at fifth unit of the commodity marginal utility further decreases and becomes negative 2).
