Law of Diminishing Marginal Utility

Introduction :

It was introduced by Gossen later it was developed by Jevons and marshall. It is also known as Gossens 1st Law.

Definition of law of diminishing marginal utility :

"As a consumer increase the consumption of any one of the commodity, keeping constant consumption of all other commodity, the marginal utility of variable commodity must eventually decline."

Meaning :

As a consumer consume more and more unit of commodity its marginal utility decline

Assumptions : Law of DMU :

1. Uniform commodity

2. The taste of consumer remain unchanged during the consumption process

3. The unit of commodity are homogeneous, they are a like in size and quality.

4. There is no time gap between the consumption of the two unit of the commodity

5. The prize of different units and of the substitutes of commodity remain same.

6. The unit of commodity should be suitable size, For example Giving water to a thirsty person by means of spoon will increase the utility of subsequent spoon of water.

7. The taste, preference and income of consumer remain unchanged.

8. This law will apply to only pleasure economy.

9. The mental situation of consumer remain same.

Importance :

1. The law of diminishing marginal utility is basic of consumption law, the law of demand, law equi - marginal and concept of consumer surplus based on this law.

2. The change in design, pattern and packaging of the commodity very often brought about by producer are keeping in with this law.

3. The progression in principal of taxation is also based on this law

    Ex : As a persons income increases the rate of taxes raises because the marginal utilty of money to him falls, with increase to his income.

4. The Law helps to explain the phenomenon in value theory, The prize increases of the commodity when it supply falls.

5. Lastly the law underlies socialist plea of an equitable distribution of wealth.

Limitations :

1. homogeneous product

2. There is continuous consumption without time interval.

3. The commodity should be divisible.

4. Suitable unit of commodity.

5. Rational behaviour of the consumer

6. This law can not be apply for precious goods.

7. Marginal utility of money is constant

8. There is no change in preference.

9. There is no change in income.

10. There is no change in prize.