Law of diminishing marginal utility

Law of diminishing marginal utility:

Statement of the law: According to the law of diminishing marginal utility, marginal utility of a good diminishes as a person 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.

Marshall states the law thus: “The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in stock that he already has.”

Illustration of the law: Suppose, a person starts eating piece of bread one after another. The first toast gives him great pleasure. By the time he starts taking the second, the edge of his appetite has been blunted, and the second toast, meeting with a less urgent want, yields less satisfaction; the satisfaction of the third will be less than that of the third and so on. The additional satisfaction will go on decreasing with every successive toast till it drops to zero;; and if the consumer is forced to take more, the satisfaction may become negative, or the utility may change into disutility.

The idea will be clear from the following tabular and diagrammatic representation.

Tabular representation:

Diminishing marginal utility

Units (Toasts)	Total utility (Units of satisfaction)	Marginal utility (Units of satisfaction)
1	20	20
2	38	18
3	53	15
4	64	11
5	70	6
6	72	0
7	62	-8
8	46	-16

Diagrammatic representation:

OX axis represents units of toasts.

OY axis represents units of utility.

Utility of first toast of equal to 20 units has been represented by the rectangle standing on the portion of OX axis. Thus, with every successive consumption of toast results in a declination of utility as shown by every successive rectangles which become smaller and smaller in accordance with the tabular information. In the 6^th unit of toast, utility becomes to zero. From the 7^th unit it becomes negative as shown by rectangles below OX axis.

So, we can conclude saying that though total utility increases but at a decreasing rate and the rate is decreasing due to the law of diminishing marginal utility i.e. the more we shall consume a good, the additional utility that we derive from each additional unit goes on decreasing.

Limitations of the law:

1) It assumes that the commodity is taken in suitable units.

2) It is further assumed that the commodity is taken in certain time; otherwise the law will not apply.

3) There should be no change in consumer’s tastes.

4) The law is applicable to normal persons only.

5) The income of the consumers remains the same.

6) The law is not applicable in case of rare collections.

7) It is not applicable in case of fashion.

8) It is not applicable to money.

9) The law ignores the relation of complementary.

10) It ignores the effect of change in other’s people’s stock.