Question

State the assumptions of marginal utility analysis.

Answer 1

1. All the units of a commodity must be identical, i.e., same in all respects - in size, colour, design, quality, etc. For example, if the quality of the second mango is superior than the first, the consumer may derive more utility from the second mango than from the first.
2. The unit of the good must be standard, e.g., a cup of water, a bottle of cold drink, a pair of shoes, a full mango, a glass of water. The units of the commodity should not be too small or too large. Otherwise, the law will not hold.
3. The unit of the good must be standard, e.g., a cup of water, a bottle of cold drink, a pair of shoes, a full mango, a glass of water. The units of the commodity should not be too small or too large. Otherwise, the law will not hold.
4. There must be continuity in consumption and if a break in the continuity is necessary, the time interval between the consumption of two units must be short. In other words, different units of a commodity should be consumed continuously. For example, if a person consumes the first mango now and gets some utility from it and consumes the second mango after a couple of hours, he may get more utility from the second mango because his hunger may have increased meanwhile. The law of diminishing marginal utility applies only when the consumption occurs over a relatively short time span.
5. There should be no change in the prices of substitute goods. If the prices of substitute goods change, it may become difficult to have an idea about the utility that the consumer might get from the main commodity.
6. The utility is measurable.
7. The consumer is rational while taking consumption decisions.
8. Marginal utility of money is assumed to be constant.