Law of diminishing marginal utility

easy approach

1. Law of Diminishing Marginal Utility Presented by :- Amritpal Kaur Sachin Chaudhary Neha kumari Deepshikha gupta Priya mathur

2. Introduction What is utility ? The want satisfying power of a commodity is termed as utility . Economics basically deal with the problem of scarcity .Thus the resources are to be allocated efficiently . So utility means how an individual & economies aim to gain optimal satisfaction in dealing with scarcity Example :when a person is hungry , the only thing he thinks about is food . Thus the food has that satisfying power and the satisfaction that one gets from eating the food is termed as utility

3. Types Total utility –The aggregate sum of satisfaction and benefit that an individual gains from consuming a given amount of goods and services Marginal utility –It is the additional satisfaction or amount of utility gained from the consumption of extra unit of the commodity

4. Law of Diminishing Marginal Utility This law states that “as a consumer consumes more and more units of a specific commodity , the satisfaction derived from each successive unit goes on decreasing Also known as Gossen’s first law Mr. H. Gossen

5. Assumptions The utility is measurable in cardinal form A rational consumer aims at the maximization of his utility. Standard unit of measurement is constant. The commodity is consumed continuously . Proper units of good are consumed by the consumer. Units are homogenous in nature The taste of the consumer remains same . Income of the consumer remains constant. Commodity is divisible Fashion remains same

6. Explanation The law can be explained with the help of an easy example : Suppose a person consuming hamburger/meal is 1 unit, the utility derived from it is 10 utils Further on increasing the consumption to 3 or 4 units the total utility keeps on increasing but the marginal utility is decreasing Marginal utility finally falls to zero at the consumption of 6 th unit Finally it becomes negative

7. Diagrammatic Representation

8. Examples If a person goes on consuming antibiotics it will not kill pathogens at a point of time , and might even become harmful to the body. To quench the thirst a person drinks water but beyond a point , consumption of more water might make the person vomit, hence this will lead to diminishing marginal utility. It takes a certain amount of food energy to sustain a population, yet beyond a point more calories cannot be consumed and are simply discarded.

9. Application T hey have variety of dishes to satisfy the needs of their customers Whenever the price of a good exceeds the marginal utility the expenditure is controlled at that time This law serves the basis for progressive taxation The producers keep on making new products keeping in view this law R estaurants Govt. taxes Production process Household E xpenditure

10. Liquor consumption –the more a person drinks liquor the more he has the urge to drink Rare collection –a person who is in the habit of collecting rare things goes on collecting them even if he already have plenty of them a good example can be of diamonds Money –the more a person has , the more he wants Exceptions

11. Conclusion To recapitulate , law of diminishing marginal utility forms the basis of various other laws and the law has a wide application in daily life . This law initially given by Mr. H. Gossen was further restated by Alfred Marshall “ The additional benefit which a person derives from an increase of his stock of thing diminishes with every increase in the stock that he already has “ Alfred Marshall