The law of diminishing marginal utility is a law of economics stating that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

1. -By Pranay Karwa &
Abhishek ,
MEC I A

2. Law of
Diminishing
Marginal
Utility
Definition of the law
and its statement.
Assumptions
of the law
&
Illustration.
A Quick recap
OR
Summary
Limitations and
Importance of the law

3. The Law Of Diminishing Marginal Utility was originally explained by
Hermann Heinrich Gossen in 1854 . Jevons called it as Gossen’s first law .
But Alfred Marshall popularised this law and analysed it in a scientific
manner.
“The additional benefit which a person derives from a
given incresase of his stock of a thing diminishes with
every increase in stock that he already has.” – Alfred
Marshall

4. Definition By Kenneth E. Boulding :-
“ As a consumer increases the consumption of
any commodity , keeping constant the
consmption of all other commodities , the
marginal utility of the variable commodity
must eventually decline”.
Meaning :-
The law says that as a consumer takes more units of a good , the
extra satisfaction that he derives from the extra unit of the good
goes on falling . The relationship betweeen quantity consumed
and utility derived from each successive unit consumed is called
the law of diminishing marginal utility .

5. Statement of the law
:-The Law Of Diminishing Marginal Utility is based on
the fact that though human wants are unlimited , any
particular want is satiable . This law analyses
consumers behaviour in case of a single good . If a
person goes on consuming more and more units of a
commodity , the additional utility he derives from the
additional units of the commodity goes on diminishing
.This phenomenon of human behaviour is explained by
this law . Thus , The Law of Diminishing Marginal
Utility explains the relationship between the quantity
of good consumed and the utility derived.
Its YUMMY!
1. 2.
Its just OK
3.
Its enough now
4.
Ahh..!
Im hating it

6. The law is based on the following assumptions :
 Rationality : The consumer is a rational human being in the sense that he
seeks to maximize satisfaction.
 Cardinal Measurement of Utility : utility is a cardinal concept i.e. utility is
measured quantitatively . It can be measured in cardinal numbers.
 Independent Utility : The utility of any commodity of any commodity
depends on its own quantity i.e. utility of goods are independent
 Constant Marginal Utility of Money : It is assumed that MU of money
remains constant.
 Homogeneous Goods : Goods are homogeneous in sense that they are
alike both quantitatively and qualitatively.
 Uniform size of goods : Goods should be of suitable size that is neither too
big nor too small
 No time lag : There is no time lag between the consumption of one unit to
the other unit .
 Divisible commodity : Commodity is divisible.
 No changes in consumer behaviour : The consumer’s tastes and
preferences remain same during the period of the consumption
 Full knowledge of Market : Consumer will have full knowledge of Market.

7. Assume that a consumer consumes 6 apples one after another. The first apple gives
him 20 utils (units for measuring utility). When he consumes the second and third
apple, the marginal utility of each additional apple will be lesser. This is because with
an increase in the consumption of apples, his desire to consume more apples falls.
 Therefore, this example proves the point that every successive unit of a commodity
used gives the utility with the diminishing rate.
We can explain this more clearly with the help of a table and diagram.
1 20 20
2 15 35
3 10 45
4 05 50
5 00 50
6 -05 45
Table : Total Utility and Marginal Utility
Unit of Consumption Marginal Utility Total Utility

8. From the table on the last slide we observed, the total utility obtained from the first
apple is 20 utils, which keep on increasing until we reach our saturation point at
5th apple. On the other hand, marginal utility keeps on diminishing with every
additional apple consumed. When we consumed the 6th apple, we have gone over the
limit. Hence, the marginal utility is negative and the total utility falls.
Continue….
0
10
20
30
40
50
60
1 2 3 4 5 6
Quantity of apples

9. When the first apple is consumed, the marginal utility is 20. When
the second apple is consumed, the marginal utility increases by 15
utils, which is less than the marginal utility of the 1st apple – because
of the diminishing rate. Therefore, we have shown that the utility of
apples consumed diminishes with every increase of apple consumed.
Similarly, when we consumed the 5th apple, we are at our saturation
point. If we consume another apple, i.e. 6th apple, we can see that the
marginal utility curve has fallen to below X-axis, which is also
known as ‘disutility’

10. The law is not applicable to abnormal persons. If a man is drunkard the more liquor he
drinks the more he is tempted to drink. The law does not operate here.
The law implies that the habits, tastes, temperament and income of the consumer
remain constant for the operation of the law. If any of these things changes, the
consumer will behave differently and the law will not operate.
It is said that the law is not applicable in case of rare collection of stamps, coins and
artistic objects. A collector of stamp is interested in collection of stamps of different
variety not the same variety. If he collects the stamps of same variety then from every
additional unit he will derive less and less of satisfaction.
If there is very long time period interval between the consumption of different units of
commodity at that time consumer may get more satisfaction from additional units
If the goods are not independent , this law will not work. Complementary goods can be
one of the example.
Marginal Utility of money isn’t constant .Our desire for money increases as we have
more of it
If the goods are not homogeneous , this law will not work.
In the case of durable goods , its not possible to calculate their utility because theirn use
is spread over a period of time . A consumer doesn’t buy more durable goods for personal
consumption

11. This law is of great importance in economics:
1. Basis of Economic Laws:
The Law of Diminishing Marginal Utility is the basic law of consumption. The Law of Demand, the Law of
Equi-marginal Utility, and the Concept of Consumer’s Surplus are based on it.
2. Diversification in Consumption and Production:
The changes in design, pattern and packing of commodities very often brought about by producers are in
keeping with this law. We know that the use of the same good makes us feel bored; its utility diminishes in
our estimation. We want variety in soaps, toothpastes, pens, etc. Thus, this law helps in bringing variety in
consumption and production.
3. Value Theory:
The law helps to explain the phenomenon in value theory that the price of a commodity falls when its
supply increases. It is because with the increase in the stock of a commodity, its marginal utility diminishes.
4. Diamond-Water Paradox:
The famous “diamond-water paradox” of Smith can be explained with the help of this law. Because of their
relative scarcity, diamonds possess high marginal utility and so a high price. Since water is relatively
abundant, it possesses low marginal utility and hence low price even though its total utility is high. That is
why water has low price as compared to a diamond though it is more useful than the latter.
5. Progressive Taxation:
The principle of progression in taxation is also based on this law. As a person’s income increases, the rate
of tax rises because the marginal utility of money to him falls with the rise in his income.

12. As a consumer increases the consumption of any commodity , keeping constant
the consumption of all other commodities , the marginal utility of the variable
commodity must eventually decline”.
 The law assumes the rationality of consumer , independent utility of
commodity , constant MU of money , divisible commodity , no change in
consumer behaviour , etc…
 The law isn’t applicable if consumer is abnormal or if his/her taste &
preferences changes. It is not applicable in case of artistic goods, complementary
goods , non homogeneous goods and durable goods.
 The law is of great importance in economics. It is a basis for other economic
laws. It helps to explain value theory . Principle of Progressive Taxation is also
based on this law .