Law of Diminishing

Marginal Utility

Presented by :-Amritpal Kaur Sachin ChaudharyNeha kumari Deepshikha gupta Priya mathur

Introduction

Utility

DefinitionExample

Types

Types

Total Utility &

Marginal Utility

Law of Diminishing

Marginal Utility This law states that “as a

consumer consumes more and more units of a specific commodity , the satisfaction derived from each successive unit goes on decreasing

Also known as Gossen’s first lawMr. H. Gossen

Assumptions

1.The utility is measurable in cardinal form 2.A rational consumer aims at the maximization of his

utility.3.Standard unit of measurement is constant.4.The commodity is consumed continuously.5. Proper units of good are consumed by the consumer.6.Units are homogenous in nature 7.The taste of the consumer remains same .8.Income of the consumer remains constant.9.Commodity is divisible10.Fashion remains same

Explanation

The law can be explained with the help of an easy example :

Suppose a person consuming hamburger/meal is 1 unit, the utility derived from it is 10 utils

Further on increasing the consumption to 3 or 4 units the total utility keeps on increasing but the marginal utility is decreasing

Marginal utility finally falls to zero at the consumption of 6th unit Finally it becomes negative

Diagrammatic Representation

Examples

• If a person goes on consuming antibiotics it will not kill pathogens at a point of time , and might even become harmful to the body.

• To quench the thirst a person drinks water but beyond a point , consumption of more water might make the person vomit, hence this will lead to diminishing marginal utility.

• It takes a certain amount of food energy to sustain a population, yet beyond a point more calories cannot be consumed and are simply discarded.

ApplicationThey have variety of dishes to

satisfy the needs of

their customers

Whenever the price of a

good exceeds the marginal

utility the expenditure is controlled at

that time

This law serves the basis for

progressive taxation

The producers keep on

making new products

keeping in view this law

Restaurants Govt. taxes

Production process

Household Expenditure

a) Liquor consumption –the more a person drinks liquor the more he has

the urge to drink b) Rare collection –a person who is in the

habit of collecting rare things goes on collecting them even if he already have plenty of them a good example can be

of diamonds c) Money –the more a person has , the

more he wants

Exceptions

Conclusion

To recapitulate , law of diminishing marginal utility forms the basis of various other laws and the law has a wide application in daily life . This law initially given by Mr. H. Gossen was further restated by Alfred Marshall “The additional benefit which a person derives from an increase of his stock of thing diminishes with every increase in the stock that he already has “ Alfred Marshall