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Elucidate the law of diminishing marginal utility with a diagram?

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Introduction:
H.H.Gossen, an Austrian Economist was the first to formulate this law in Economics in 1854. Therefore Jevons called this law as “ Gossen’s First Law of Consumption”. But credit goes to
Marshall, because he perfected this law on the basis of Cardinal Analysis. This law is based on the characteristics of human wants, i.e. wants are satiable.

Definition:
Marshall states the law as “ the additional benefit which a person derives from a given increase of his stock of a thing, diminishes with every increase in the stock that he already has”.

Assumptions:

  1. Utility can be measured by cardinal numbers such as 1, 2, 3 and so on.
  2. The marginal utility of money of the consumer remains constant.
  3. The consumer should be a rational consumer and his aim is to attain maximum satisfaction .with minimum expenditure.
  4. The units of the commodity consumed must be reasonable in size.
  5. The commodity consumed should be homogeneous or uniform in charcter like weight, quality, taste, colour etc.
  6. The consumption of goods must take place continuously at a given period of time.
  7. There should be no change in the taste, habits preferences, fashions, income and character of the consumer during the process of consumption.

Explanation:
The Law of Diminishing Marginal utility states that if a consumer continues to consume more and more units of the same commodity, its marginal utility diminishes. This means that the more we have of a thing, the less is the satisfaction or utility that we derive from the additional unit of it.

The Law of Diminishing Marginal utility:

  1. In this table, we find that the total utility goes on increasing but at a diminishing rate.
  2. The law can be explained with a simple illustration.
  3. Consumer wants to consume 7 apples one after another.
  4. The utility from the first apple is 20.
  5. But the utility from the second apple will be less than that of the first [say 15].
  6. The third less than that of the second [say 10] and so on.
  7. Finally, the utility from the fifth apple becomes zero and the utilities from sixth and seventh apples are negative for disutility or disliking.
  8. This tendency is called the “ The Law of Diminishing Marginal Utility”.
  9. In this table we find on the other hand, marginal utility goes on diminishing.
  10. When marginal utility becomes zero, the total utility is maximum and when marginal utility becomes negative, the total utility diminishes.

The X-axis represents the number of apples consumed
Y-axis represents total utility and marginal utility
TU – represents total utility
MU – represents marginal utility

Criticisms:

  1. Utility cannot be measured numerically, because utility is subjective.
  2. This law is based on unrealistic assumptions.
  3. This law is not applicable to indivisible commodities.

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