Law of diminishing marginal utility

LDMU

1. Law of Diminishing Marginal Utility By Tinto Tom

2. German economist H.H Gossen developed this law. This theory also known as Gossen’s First Law. It was popularized by Prof.Alfred Marshall. This law has been stated differently by different economists. According to Marshall “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”. Law of Diminishing Marginal Utility say that we obtain less and less marginal utility from the successive units of a commodity as we consume more and more of it. H.H Gossen Alfred Marshall Law of Diminishing Marginal Utility

3. Taste and preference of the consumer remain unchanged Income of the consumer remain constant Units of the goods are identical or similar The process of consumption is continuous Assumptions

4. Explanation of the law 1 st apple Derives highest level of utility Intensity of his desire declines 2nd apple Get lesser satisfaction than first apple Intensity of his desire again declines 3rd apple Get lesser satisfaction than second apple Intensity of his desire again declines If he continues to consume more and more apples, utility from each apple goes on diminishing, as the intensity of his desire goes on diminishing

5. LDMU can be explained with the help of imaginary utility schedule Units of apple consumed Total utility Marginal utility 1 8 8 2 13 5 3 16 3 4 18 2 5 18 6 15 -3

6. In the diagram Units of consumption measured on the X axis and utility measured on the Y axis. In the diagram total utility curve move upward to maximum T.U point and then slopes downwards. Marginal utility curves slopes downward from the beginning, touched the X axis at zero M.U point and thereafter goes below X axis when marginal utility becomes negative. The falling marginal utility curve from left down to the right clearly tells us that the marginal utility of the successive apple or any other item is falling.

7. The law of diminishing marginal utility is not applicable to money. It is not applicable to rare collections like old stamps, old coins etc. It is not applicable to the consumption of liquor. Limitations of the law