Law of Diminishing Marginal Utility

Generally, the more of a particular commodity human being possesses the less the intensity for more. Hence man’s subsequent unit, desire diminishes.

The law of diminishing marginal utility was first formulated in 1854 by Hermann H. Gossen, though the name was given by Alfred Marshal and Jevons calls it Gossen’s first law. Gossen defines it as “the magnitude of one and the same satisfaction, when we continue to enjoy it without interruption, continually decreases until satiation is reached”

Law of Diminishing Marginal Utility

The law of diminishing marginal utility can, therefore, be stated that as consumption of any single product increases, the TU therefrom will increase (up to a point) – but marginal utility gradually decreases. In other words, as the quantity consumed of a product increases per unit of time, the utility derived from each successive unit decreases, consumption of other commodities remaining constant.

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Assumptions of the law of diminishing marginal utility:

Jhingan (2005) identifies the following assumptions:

  1. There should be a single commodity with homogeneous units wanted by an individual consumer.
  2. There should be no change in the tastes, habits, customs, fashions, and income of the consumer.

iii. There should be continuity in the consumption of the commodity.

  1. Units of the commodity should be of a suitable size.
  2. Prices of the different units and of the substitutes of the commodity should remain the same.
  3. The commodity should be divisible.

vii. The consumers should be an economic man who acts rationally.

viii. Goods should be of an ordinary type.

  1. Our intensity for money increases as we have more of it.
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It should be noted that this law is applicable in the case of physiological, social or artificial wants. In addition, different commodities may have different levels at which diminishing marginal utility sets in.; it does not even apply to other commodities such as money and precious stones. This explains the reason why the marginal utility of money can never be zero.

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