Question

Explain with reason whether you 'agree' or 'disagree' with the following statement:

Law of diminishing marginal utility depends upon various assumptions.

Answer 1

Yes, I agree to this statement.

(i) Homogeneity : The law assumes that units of commodity consumed by consumer are uniform. They are identical or same in size, colour, shape, taste etc.

(ii) Single use : Here, it is assumed that a commodity is used to satisfy only a single want to experience the law.

(iii) Cardinal Measurement : Utility can be measured in numbers. So that, it is possible to know and compare utility derived from each unit of a commodity.

(iv) Rationality : A consumer is assumed to be a rational person and he tries to maximise his satisfaction from his given income.

(v) Continuity : There should not be a time lag between consumption of 2 successive unit. MU will not diminish, if there is time interval.

(vi) Standard Units : The units of commodity consumed should be of a standard or normal size. They should neither be too big or too small, e.g. a cup of tea etc.

(vii) Condition of Divisibility : The law assumes that the commodity consumed by the consumer is divisible so that, it can be acquired in small quantities for consumption.

viii) Constancy : MU of money remains constant. Tastes, habits, likings etc. of consumer and place of a commodity remain constant through out the period of consumption.