Law of Diminishing Marginal Utility

Topics: Utility, Consumer theory, Marginal utility Pages: 4 (1275 words) Published: October 16, 2012
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 unlimitedbut each single want can be satisfied. As a man gets more and more units of a commodity, the desire ofhis for that good goes on falling. A point is reached when the consumer no longer wants any more units ofthat good. * Secondly, different goods are not perfect substitutes for each other in the satisfaction ofvarious particular wants. As such the marginal utility will decline as the consumer gets additional units ofa specific good. * Thirdly, the marginal utility of money is constant given the consumer’s wealth.The basis of this law is a fundamental feature of wants. It states that when people go to the market for thepurchase of commodities, they do not attach equal importance to all the commodities which they buy. Incase of some of commodities, they are willing to pay more and in some less. There are two main reasons for this difference in demand.

(1) the linking of the consumer for the commodity and (2) the quantity of thecommodity which the consumer has with himself. The more one has of a thing, the less he wants theadditional units of it. In other words, the marginal utility of a commodity diminishing as the consumer getslarger quantities of it. This, in brief, is the axiom of law of diminishing...
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