Law of diminishing utility: Limitations of the Law of Diminishing Marginal Utility:

Law of diminishing utility: Limitations of the Law of Diminishing Marginal Utility:

By studying the law of diminishing utility. we will discover what the law of diminishing utility is in this article. The law of diminishing marginal utility holds that as we consume more of an item, the amount of satisfaction produced by each additional unit of that good declines. The change in utility gained from utilizing an additional unit of a product is known as marginal utility.

According to the Law of Diminishing Marginal Utility, the marginal utility of a good diminishes as an individual consumes more units of a good. In other words, as a consumer takes more units of a good, the extra utility or satisfaction that he derives from an extra unit of the good goes on falling.

It should be carefully noted that is the marginal utility and not the total utility that declines with the increase in the consumption of a good. The law of diminishing marginal utility means that the total utility increases but at a decreasing rate.

Diminishing Marginal Utility

Utility:

The term utility is the capacity of a commodity through which human wants are satisfied.  For example, a consumer can purchase a sandwich so they are no longer hungry, thus the sandwich provides some utility.

Diminishing Marginal Utility - Sunny Mughal

What is the Law of Diminishing Utility?

According to many economists like Dr. Marshall, the law of diminishing marginal utility definition is when the additional benefit that a person derives from a given increase of his stock of anything diminishes with the increase in the stock that he already has. The law states that the more we have of a commodity, the less we want to have more of it as the utility derived from every success unit of the commodity keeps on declining when more is consumed.

Assumptions of the Law:

  • Units of commodities consumed should be identical or homogeneous, that is, the same in all respects.
  • Units should be consumed in quick succession with minimal breaks in between.
  • Units should be of a standard size, that is, neither too big nor too small.
  • The taste of the consumers should be constant.
  • There should be no change in the price of substitute goods. If the prices of substitute goods change, it may become difficult to have an idea about the utility that the consumer might get from the main commodity.
  • The utility is measurable.
  • The consumer is rational while making consumption decisions.

Relationship between Marginal Utility and Total Utility:

  • When marginal utility falls but is positive, total utility increases in a diminishing manner.
  • When marginal utility is zero, total utility is maximum.
  • When marginal utility is negative, total utility declines.

Limitations of the Law of Diminishing Marginal Utility:

The law does not operate in the following cases:
Very Small Units: If the units of commodities are very small then the law does not operate.

Dissimilar units: The unit should be similar in size, quality, etc. The law of diminishing marginal utility will not operate if the units that are consumed are not similar in size and quality.

Too long an interval: The law will also not operate if the units are consumed after long breaks.

Mentally unstable people: People like drunkards or drug addicts will get greater satisfaction with every successive dose of liquor. Hence, the law fails to operate in these cases.

Rare collections: This refers to hobbies. When people collect rare coins and stamps for example, in such cases the person’s satisfaction increases with every addition to their stock or collection. The law hence cannot operate.

Not applicable to money: Money is a commodity that is appreciated greatly by the rich and poor. There is a saying that the more money a person has the want he wants of it, hence, the law cannot operate in the case of money.

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