micro economics

1. Law of Diminishing
Marginal
Utility
Presented by :-
Amritpal Kaur
Sachin Chaudhary
Neha kumari
Deepshikha gupta
Priya mathur

2. Introduction
Utility
Definition
Example
Types

3. Types
Total Utility
&
Marginal Utility

4. Law of
Diminishing
Marginal Utility
 This law states that “as a consumer
consumes more and more units of a
specific commodity , the satisfaction
derived from each successive unit goes on
decreasing
Also known as Gossen’s first law
Mr. H. Gossen

5. Assumptions
1.The utility is measurable in cardinal form
2.A rational consumer aims at the maximization of his
utility.
3.Standard unit of measurement is constant.
4.The commodity is consumed continuously.
5. Proper units of good are consumed by the consumer.
6.Units are homogenous in nature
7.The taste of the consumer remains same .
8.Income of the consumer remains constant.
9.Commodity is divisible
10.Fashion remains same

6. Explanation
The law can be explained with the help of an easy example :
Suppose a person consuming hamburger/meal is 1 unit, the utility
derived from it is 10 utils
Further on increasing the consumption to 3 or 4 units the total
utility keeps on increasing but the marginal utility is decreasing
Marginal utility finally falls to zero at the consumption of 6th unit
Finally it becomes negative

7. Diagrammatic
Representation

8. Examples
• If a person goes on consuming antibiotics it will not kill pathogens at a
point of time , and might even become harmful to the body.
• To quench the thirst a person drinks water but beyond a point ,
consumption of more water might make the person vomit, hence this will
lead to diminishing marginal utility.
• It takes a certain amount of food energy to sustain a population, yet
beyond a point more calories cannot be consumed and are simply
discarded.

9. Application
They have
variety of
dishes to
satisfy the
needs of
their
customers
Whenever the
price of a
good exceeds
the marginal
utility the
expenditure is
controlled at
that time
This law
serves the
basis for
progressive
taxation
The
producers
keep on
making new
products
keeping in
view this law
Restaurants Govt. taxes
Production
process
Household
Expenditure

10. a) Liquor consumption –the more a
person drinks liquor the more he has
the urge to drink
b)Rare collection –a person who is in the
habit of collecting rare things goes on
collecting them even if he already have
plenty of them a good example can be
of diamonds
c) Money –the more a person has , the
more he wants
Exceptions

11. Conclusion
To recapitulate , law of diminishing
marginal utility forms the basis of
various other laws and the law has
a wide application in daily life . This
law initially given by Mr. H. Gossen
was further restated by Alfred
Marshall “The additional benefit
which a person derives from an
increase of his stock of thing
diminishes with every increase in
the stock that he already has “ Alfred Marshall