Question

State and explain the assumptions of the law of diminishing marginal utility.

Answer 1

Statement of the Law: According to Prof. Alfred Marshall, “Other things remaining constant, the additional benefit which a person derives from a given increase in his stock of a thing diminishes with every increase in the stock that he already has.”

In other words, marginal utility that any consumer derives from successive units of a particular commodity goes on diminishing as his or her total consumption of that commodity increases. In short, the more of a thing you have, the less you want to have more of it.

Following are the assumptions of the law of diminishing marginal utility:

1. Rationality: The consumer is assumed to be rational. It means that his behaviour is normal and he tries to maximize his satisfaction.
2. Cardinal Measurement: The law assumes that utility can be cardinally or numerically measured. Hence, mathematical operations are easily possible to know and compare the utility derived from each unit of a commodity.
3. Homogeneity: All units of commodities consumed are exactly homogeneous or identical in size, shape, colour, taste, etc.
4. Continuity: All units of a commodity are consumed in quick succession without any lapse of time.
5. Reasonability: All the units of a commodity consumed are of reasonable size. They are neither too big nor too small.
6. Constancy: All the related factors like income, tastes, habits, choices, and likes and dislikes of a consumer should remain constant. The marginal utility of money is also assumed to be constant.
7. Divisibility: The low assumes that the commodity consumed by the consumer is divisible so that it can be acquired in small quantities.
8. Single want: A was given a commodity that can satisfy a single want of a person. The Low assumes the experience of a single want that is completely satiable at a given point in time.