Law of diminishing marginal utility, Gossen's first Law,

1. S.A. QURESHI

2. Definition: “when a good is continuously consumed then its marginal utility gradually
starts decreasing and a point will come where the marginal utility becomes zero.”
Professor Marshall describes the law of diminishing marginal utility in the following
words.
“The additional utility which a person derives from an increase of his stock of a
commodity diminishes with every increase in the stock that he already has.”
LAW OF DIMINISHING MARGINAL UTILITY

3. Assumptions
1. There should be no change in the nature of the commodity.
2. The size of the commodity is not so big not so small. If the size is too big or too small
the law will not operate.
3. All the units of the good are being used continuously.
4. It has been assumed that the income of the consumer is not changing
5. State of mind of the consumer do not change
6. There is no change in the Taste Fashion Weather and customs of the consumer
LAW OF DIMINISHING MARGINAL UTILITY

4. LAW OF DIMINISHING MARGINAL UTILITY
MU
20
15
10
05
0
-5
MU
curve
Glass of water1 2 3 4 5 6
Glass
of
Water
Marginal
Utility
Total
Utility
1 20 20
2 15 35
3 10 45
4 5 50
5 0 50
6 -5 45
a
b
c
d
e
f

5. LAW OF DIMINISHING MARGINAL UTILITY
Explanation
When a consumer use first glass of water then suppose it provide him 20 utils. Hence the total
utility of the is 20 and the Marginal utility is also 20. As the consumer takes the second glass of
water the MU decrease to 15 utils and the Total utility become s 35. Third and fourth unit give 10
and 5 marginal utils respectively to the consumer and the total utility becomes 45 and 50
respectively. As soon as the consumer use the 5th unit the MU becomes zero and the Total utility
remain same i.e 50. At this point the marginal utility curve intersect the x-axis showing zero utils.
If the consumer keeps on using the units of the good then the 6th unit of the good will provide the
consumer negative 5 utils. And the curve enter into the negative region.

6. LAW OF DIMINISHING MARGINAL UTILITY
Exceptions OR Limitations
Money: This law is not applicable in case of Money. With an increase in wealth man wants to
get more and more.
Desire of Knowledge: Some experts say that man wants to get more and more knowledge so the
law cannot be applied in this case.
Use of Liquor and Drugs: With the additional use of liquor like wine and drugs marginal utility
also goes on increasing
Personal Hobby: In case of hobby also this law cannot operate. For example, as the collection
of tickets increases its utility also increases.
Fashion: Utility also depend upon fashion. If the fashion of any commodity changes its utility
drop down to zero. On the other hand if fashion exists the utility increases.

7. S.A. QURESHI