Created By Dr. Raavi Jain

1. LAW OF DIMINISHING
MARGINAL UTILITY
Gossen’s First Law

2. DEFINITION OF LAW OF DIMINISHING
MARGINAL UTILITY
According to Alfred Marshall “the additional
utility which a person derives from the
consumption of a commodity diminishes,
that is Total Utility increase at an diminishing
rate”.
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3. LAW OF DIMINISHING MARGINAL UTILITY
“The additional utility which a person derives from the consumption
of a commodity diminishes, that is total utility increase at an
diminishing rate” . Unit of
Mango
Total
Utility
Marginal
Utility
1 10
2 20
3 29
4 37
5 43
6 48
7 51
8 52
9 52
10 50
MUn = TUn – TUn-1
OR
MU =∆TU/∆Q

4. LAW OF DIMINISHING MARGINAL UTILITY
“The additional utility which a person derives from the consumption
of a commodity diminishes, that is total utility increase at an
diminishing rate” .
Unit of
Mango
Total
Utility
Marginal
Utility
1 10 10
2 20 10
3 29 9
4 37 8
5 43 6
6 48 5
7 51 3
8 52 1
9 52 0
10 50 -2
MUn = TUn – TUn-1
OR
MU =∆TU/∆Q

5. Saturation Point MU =0 or TU is maximum
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6. 1. HOMOGENEOUS UNITS OF THE COMMODITY
2. CONTINUOUS CONSUMPTION PROCESS
3. NO CHANGE IN FASHION, NATURE &
PREFERENCE OF CONSUMERS
4. ALL THE UNITS MUST BE UNIFORM
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7. 5. RATIONALITY IN CONSUMER’S BEHAVIOUR
6. CONSUMPTION IN SUITABLE QUANTITY
7. CONSTANT INCOME OF CONSUMERS
8. NO CHANGE IN PRICE
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8. 1. MONEY AND WEALTH ACCUMULATION
2. SUITABLE UNITS
3. COMMODITY SATISFYING DIFFERENT WANTS
4. A DRUNKARD
5. MUSIC, RECITAL ,ETC.
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9. 6. INCREASE IN THE NUMBER OF CONSUMERS
7. ANTICIPATED AVAILIBILITY OF A COMMODITY
8. CHANGE IN AVAILABILITY OF
COMPLEMENTARY COMMODITY
9. CHANGE IN AVAILABILITY OF SUBSTITUTE
COMMODITY
10. RARE COLLECTIONS
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10. IMPORTANCE OF LAW OF DIMINISHING
MARGINAL UTILITY
I. THEORETICAL IMPORTANCE
1. Basis of law of demand- why demand curve slops
downward
2. Basis of Law of equi- marginal utility
3. Basis of Consumer surplus
4. Basis of Socialism
5. Water-diamond paradox resolve
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11. II. PRACTICAL IMPORTANCE
1.Basis of Progressive Tax
2.A base of diversity in production
3.A base of household expenditure
4.A base of public expenditure
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