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Explain the Law of Diminishing Marginal Utility with the help of an example.

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Utility refers to the amount of satisfaction derived from consumption of a good. 

As consumer goes on consuming more and more units of a good, utility obtained From consuming each extra unit goes on falling. Ultimately, it may become zero or even negative. This is the Law of Diminishing Marginal Utility.

Detailed Answer

'Other things remaining the same when a person takes successive units of a commodity, the marginal utility diminishes constantly.' 

The marginal utility of a commodity diminishes at the consumer gets larger quantities of it. Marginal utility is the change in the total utility resulting from one unit change in the consumption of a commodity per unit of time. 

Assumptions: 

Followings are some assumptions of the law of diminishing marginal utility: 

(i) It is assumed that utility can be measured and a consumer can express his satisfaction in quantitative terms such as as1,2,3... etc. 

(ii) Consumption of reasonable quantity. 

(iii) Continuous consumption. 

(iv) Monetary measurement of utility. 

(v) No change in quantity. 

(vi) Rational consumer. 

(vii) MU of money remains constant. 

(viii) Independent utilities. 

(ix) Fixed income price. 

This law can be explained with the help of the following schedule :

Units Consumed Total utility(TU) Marginal Utility (MU)



4
10 
18 
24 
28
10 


4


The above schedule shows that with the consumption of successive unit of a commodiy, the level of satisfaction falls and becomes negative also, or in other words, MU tends to decline as consumption of the commodity increases.

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