The law of diminishing marginal utility is central to the cardinal utility analysis of consumer behaviour. This law states that as the consumption of the commodity increases per unit of time, the utility derived by the consumer from the successive units, decreases continuously, provided the consumption of all other goods remains constant.
This law stems from the facts –
(i) that the utility derived from a commodity depends on the intensity or urgency of the need for that commodity, and
(ii) that as more and more quantity of a commodity is consumed, the intensity of desire decreases. For this reason, the utility derived from the marginal units goes on diminishing.
