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Law of Diminishing Marginal Utility - Detailed Explanation

Note: There are two laws of utility that are often discussed together: law of diminishing marginal utility and the law of equi-marginal utility. This article explains the law of diminishing marginal utility.

The law of diminishing marginal utility is an important concept to understand. It basically falls in the category of Microeconomics, but it is of equal and significant importance in our day-to-day decisions. In this article, you will find the definition of the law of diminishing marginal utility, its detailed explanation with the help of a schedule and diagram, assumptions we make in the law of diminishing marginal utility and the exceptions where the law of diminishing marginal utility does not apply.

We will first start with the basic definition of ‘Utility’.

Utility:

Utility is the capacity of a commodity through which human wants are satisfied.

Law of Diminishing Marginal Utility:

The law of diminishing marginal utility is comprehensively explained by Alfred Marshall. According to his definition of the law of diminishing marginal utility, the following happens:

“During the course of consumption, as more and more units of a commodity are used, every successive unit gives utility with a diminishing rate, provided other things remaining the same; although, the total utility increases.”

Utils:

'Utils' is considered as the measurable 'unit' of utility.

Explanation for the Law of Diminishing Marginal Utility:

We can briefly explain Marshall’s theory with the help of an example. 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 schedule and diagram.

Schedule for Law of Diminishing Marginal Utility:

Unit of ConsumptionMarginal UtilityTotal Utility

1

20

20

2

15

35

3

10

45

4

05

50

5

00

50

6

-05

45

In the above table, 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.

With the help of the schedule, we have made the following diagram:

law-of-diminishing-marginal-utility-detailed-explanation

Saturation Point: The point where the desire to consume the same product anymore becomes zero.

Disutility: If you still consume the product after the saturation point, the total utility starts to fall. This is known as disutility.

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’.

The unit and its quality must remain same.

The unit and its quality must remain same.

Assumptions in the Law of Diminishing Marginal Utility:

For the law of diminishing marginal utility to be true, we need to make certain assumptions. Each assumption is quite logical and understandable. If any of the assumptions are not true in the case, the law of diminishing marginal utility will not be true.

Following are the assumptions in the law of diminishing marginal utility:

  • The quality of successive units of goods should remain the same. If the quality of the goods increase or decrease, the law of diminishing marginal utility may not be proven true.
  • Consumption of goods should be continuous. If there comes a substantial break in the consumption of goods, the actual concept of diminishing marginal utility will be altered.
  • Consumer’s mental outlook should not change.
  • Unit of good should not be very few or small. In such a case, the utility may not be measured accurately.

Exceptions for the Law of Diminishing Marginal Utility:

The law of diminishing marginal utility states that with the consumption of every successive unit of commodity yields marginal utility with a diminishing rate. However, there are certain things on which the law of diminishing marginal utility does not apply.

Following are the exceptions for this law:

  • Desire for money.
  • Desire for knowledge.
  • Use of liquor or wine.
  • Collection of rare objects.

Conclusion:

This concludes the explanation for the law of diminishing marginal utility. Feel free to ask any question in the comment section below.

© 2013 Syed Hunbbel Meer

Comments

Hillang on July 26, 2020:

Awesome explanation, really helpful to understand the concept. thanks a lots

Sunny on December 07, 2019:

Use the law of diminishing marginal utility to explain why demand curves slope downward?

Harikishan soni on November 18, 2019:

It was useful.... I liked it soo much...

Athira on October 29, 2019:

Assignment conclusions of law of diminishing marginal utility

SAFARI Jean sauveur on October 24, 2019:

what thing course decline in marginal utility

hussain on October 18, 2019:

What is the derivation of the downward sloping demand curve from cardinal approach?

Asma on September 06, 2019:

Dose the Consumption of Air by breathing one of the cases that the low of

diminishing marginal utility doesn’t work ?

krishna rao on August 17, 2019:

give conclusion on law of diminishing marginal utility

Arbi Babu on July 29, 2019:

Whats are the importance of this law in our daily Life?

thanks for your Explaination

Subhiksha vs on July 14, 2019:

Tq for this topic and explannations

Shaik zaina on May 23, 2019:

Tqs for this topic da

isha imran on May 04, 2019:

thanks for this topic

Sanjana on March 13, 2019:

How dmu is used to determine price of commodities

Touseef on March 06, 2019:

Very nice notes

Joanna on March 03, 2019:

please explain the desire of money in relations to the law of diminishing marginal utility

m.p.d. shyamini on February 25, 2019:

how is the law of diminishing marginal utility assume to using pertilisers in the production of corns?

sandeep sagar on February 14, 2019:

i need more explanation about this

Msaada on December 27, 2018:

Please I need explanation of an exception of LDMU

wasif mehdi on December 11, 2018:

very very thanks

Adeyinka on December 08, 2018:

Please I need more assumption of law of diminishing marginal utility

Shafu on December 07, 2018:

Thank you so much...

Faisal on December 04, 2018:

Thanks for kind information about it

zafera on November 20, 2018:

10q so much

Balencha kumssa /lion on November 19, 2018:

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I was following investopedia and other for a long time but haven't saw this type of explained law of diminishing marginal utility

Abtabul Alam on November 01, 2018:

Thank's.

firdos on October 31, 2018:

It's very easy and simple notes for learning thank you so much Sir for giving a notes

Nitesh sadanand guhe on October 30, 2018:

It's hopt in economy best

Ishma on October 27, 2018:

If the detail will be more so it help me more otherwise it's good

tagung richo on October 21, 2018:

not much useful

Dua zara on October 13, 2018:

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Laiba on September 27, 2018:

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Abdul Aziz on September 15, 2018:

Thanks a lot for explaining this important article..Well explained.

Rike sanderik ch marak on September 06, 2018:

thank you for the clear explaination

Kranthi reddy on August 28, 2018:

You have given notes in a proper manner. It is the best notes to understand and reading for students easily, all the steps were understandable. I like the table and diagram representation mostly. It is very comfort to read easy.

Yash Yadav on August 24, 2018:

Very easy language. Thanks for giving such goods examples.

Harini on August 19, 2018:

Thanks

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Thanks for the simple explaination

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RB on June 09, 2018:

Not so useful

maimuna haruna on May 07, 2018:

is very helpful

Yetty on January 15, 2018:

Trying to get the table explaining the law of diminishing marginal utility

Zita on December 02, 2017:

Thanks for the simple explaination

Beryal on November 13, 2017:

Thank you! . it was very easy to understand ...;)

rosmi on October 05, 2017:

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From Bhutan on September 15, 2017:

Thank u so much

palanikumar.p on September 10, 2017:

Thank u its very helpfull to take my students. Managerial economics paper.

simonika on August 23, 2017:

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Tirth Salakiya on August 09, 2017:

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bhargavi vs on July 28, 2017:

very nice explanation

Walter onguru on July 11, 2017:

Well explained

supriya on June 08, 2017:

thank u so much for your explanation

Ayesha on June 08, 2017:

Thanks i understood every concept of this law

Usha Mahato on May 19, 2017:

Ossam, I can easily understand. Thk u

Sumit Mishra on April 09, 2017:

Thanks..that's really helping

bhija on October 29, 2015:

anx fr e notes but l think the DMU applies to the use of liqour and wine

zoha ilyas on October 16, 2015:

thanks for help this...

Almar khan on August 11, 2015:

Thank you so much for your explanation and i am able to present that topic in the class thank you so much HUNBBEL MEER

pavana on June 25, 2015:

i just needed in detail.........

Atul on March 10, 2015:

Awesome explanation

princy on January 30, 2015:

Thank u so much

navatha on January 29, 2015:

Thanks for the nice notes

dev on December 18, 2014:

nice

Towseef Ahmed Naik on December 10, 2014:

Fabulous I understand easily all contents

Syed Hunbbel Meer (author) from Karachi, Pakistan. on October 30, 2014:

You're welcome. I'm glad I could make it easy for you to understand this important concept.

syasmeen misba on October 28, 2014:

Superb very easy to understand thankq

sayed moin chagan on October 08, 2014:

Thank you for given the notes

nivadhya on September 27, 2014:

Thanks for the help

arup on September 25, 2014:

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Abhishek sawarn on September 10, 2014:

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arpan on September 01, 2014:

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