Law of Diminishing Marginal Utility

1284 words 6 pages
LAW OF DIMINISHING MARGINAL UTILITY:
The law of diminishing marginal utility describes a familiar and fundamental tendency of humanbehavior. The law of diminishing marginal utility states that:
“As a consumer consumes more and more units of a specific commodity, the utility from the successiveunits goes on diminishing”.
Mr. H. Gossen, a German economist, was first to explain this law in 1854. Alfred Marshal later onrestated this law in the following words:
“The additional benefit which a person derives from an increase of his stock of a thing diminishes withevery increase in the stock that already has”.
LAW IS BASED UPON THREE FACTS: * The law of diminishing marginal utility is based upon three facts. First, total wants of a man are
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When he takes second glass of water, the marginal utility goes on down to 12 units;When he consumes fifth glass of water, the marginal utility drops down to zero and if the consumption ofwater is forced further from this point, the utility changes into disutility (-3).Here it may be noted that the utility of then successive units consumed diminishes not because they arenot of inferior in quality than that of others. We assume that all the units of a commodity consumed areexactly alike. The utility of the successive units falls simply because they happen to be consumedafterwards.
CURVE/DIAGRAM OF LAW OF DIMINISHING MARGINAL UTILITY:The law of diminishing marginal utility can also be represented by a diagram. Handouts by: Sachin Pourush
3. In the figure (2.2), along OX we measure units of a commodity consumed and along OY is shown themarginal utility derived from them. The marginal utility of the first glass of water is called initial utility. It isequal to 20 units. The MU of the 5th glass of water is zero. It is called satiety point. The MU of the 6thglass of water is negative (-3). The MU curve here lies below the OX axis. The utility curve MM/ falls leftfrom left down to the right showing that the marginal utility of the success units of glasses of water

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