Law of Diminishing Marginal Utility - Detailed Explanation

Updated on January 3, 2017

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 Consumption
Marginal Utility
Total Utility
1
20
20
2
15
35
3
10
45
4
05
50
5
00
50
6
-05
45
The schedule explains that with each additional unit consumed the marginal utility increases with a diminishing rate. After the saturation point though, the utility starts to fall.

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:

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

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    • profile image

      hussain 

      3 days ago

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

    • profile image

      Asma 

      6 weeks ago

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

      diminishing marginal utility doesn’t work ?

    • profile image

      krishna rao 

      2 months ago

      give conclusion on law of diminishing marginal utility

    • profile image

      Arbi Babu 

      2 months ago

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

      thanks for your Explaination

    • profile image

      Subhiksha vs 

      3 months ago

      Tq for this topic and explannations

    • profile image

      Shaik zaina 

      5 months ago

      Tqs for this topic da

    • profile image

      isha imran 

      5 months ago

      thanks for this topic

    • profile image

      Sanjana 

      7 months ago

      How dmu is used to determine price of commodities

    • profile image

      Touseef 

      7 months ago

      Very nice notes

    • profile image

      Joanna 

      7 months ago

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

    • profile image

      m.p.d. shyamini 

      7 months ago

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

    • profile image

      sandeep sagar 

      8 months ago

      i need more explanation about this

    • profile image

      Msaada 

      9 months ago

      Please I need explanation of an exception of LDMU

    • profile image

      wasif mehdi 

      10 months ago

      very very thanks

    • profile image

      Adeyinka 

      10 months ago

      Please I need more assumption of law of diminishing marginal utility

    • profile image

      Shafu 

      10 months ago

      Thank you so much...

    • profile image

      Faisal 

      10 months ago

      Thanks for kind information about it

    • profile image

      zafera 

      11 months ago

      10q so much

    • profile image

      Balencha kumssa /lion 

      11 months ago

      I m happy !

    • profile image

      Nirmal Francis 

      11 months ago

      Thankyou so much, it's very helpful

    • profile image

      alishba malik 

      11 months ago

      amazing you are

      you really helped me out

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

    • profile image

      Abtabul Alam 

      11 months ago

      Thank's.

    • profile image

      firdos 

      11 months ago

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

    • profile image

      Nitesh sadanand guhe 

      11 months ago

      It's hopt in economy best

    • profile image

      Ishma 

      11 months ago

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

    • profile image

      tagung richo 

      12 months ago

      not much useful

    • profile image

      Dua zara 

      12 months ago

      Thank you very much

    • profile image

      Aji garba 

      12 months ago

      This is were learning is made easy for student to cope with thanks alot we are very greatful

    • profile image

      Laiba 

      12 months ago

      This is really helping

      Thank u so much sir

    • profile image

      Abdul Aziz 

      13 months ago

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

    • profile image

      Rike sanderik ch marak 

      13 months ago

      thank you for the clear explaination

    • profile image

      Kranthi reddy 

      13 months ago

      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.

    • profile image

      Yash Yadav 

      14 months ago

      Very easy language. Thanks for giving such goods examples.

    • profile image

      Harini 

      14 months ago

      Thanks

    • profile image

      Atul Bagh 

      14 months ago

      Thanks for the simple explaination

    • profile image

      don erickson 

      15 months ago

      this is really helping

    • profile image

      RB 

      16 months ago

      Not so useful

    • profile image

      maimuna haruna 

      17 months ago

      is very helpful

    • profile image

      Yetty 

      21 months ago

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

    • profile image

      Zita 

      22 months ago

      Thanks for the simple explaination

    • profile image

      Beryal 

      23 months ago

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

    • profile image

      rosmi 

      2 years ago

      Good

    • profile image

      manveer 

      2 years ago

      Very good as compare to bookish language

    • profile image

      From Bhutan 

      2 years ago

      Thank u so much

    • profile image

      palanikumar.p 

      2 years ago

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

    • profile image

      simonika 

      2 years ago

      Thank you

    • profile image

      Tirth Salakiya 

      2 years ago

      thanks for simple explanation with suitable example

    • profile image

      bhargavi vs 

      2 years ago

      very nice explanation

    • profile image

      Walter onguru 

      2 years ago

      Well explained

    • profile image

      supriya 

      2 years ago

      thank u so much for your explanation

    • profile image

      Ayesha 

      2 years ago

      Thanks i understood every concept of this law

    • profile image

      Usha Mahato 

      2 years ago

      Ossam, I can easily understand. Thk u

    • profile image

      Sumit Mishra 

      2 years ago

      Thanks..that's really helping

    • profile image

      bhija 

      3 years ago

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

    • profile image

      zoha ilyas 

      4 years ago

      thanks for help this...

    • profile image

      Almar khan 

      4 years ago

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

    • profile image

      pavana 

      4 years ago

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

    • profile image

      Atul 

      4 years ago

      Awesome explanation

    • profile image

      princy 

      4 years ago

      Thank u so much

    • profile image

      navatha 

      4 years ago

      Thanks for the nice notes

    • profile image

      dev 

      4 years ago

      nice

    • profile image

      Towseef Ahmed Naik 

      4 years ago

      Fabulous I understand easily all contents

    • Hunbbel Meer profile imageAUTHOR

      Syed Hunbbel Meer 

      4 years ago from Karachi, Pakistan.

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

    • profile image

      syasmeen misba 

      4 years ago

      Superb very easy to understand thankq

    • profile image

      sayed moin chagan 

      5 years ago

      Thank you for given the notes

    • profile image

      nivadhya 

      5 years ago

      Thanks for the help

    • profile image

      arup 

      5 years ago

      Thanks for making me understand...

    • profile image

      Abhishek sawarn 

      5 years ago

      Just waooo.. Thank u

    • profile image

      arpan 

      5 years ago

      Really Good

    • profile image

      jayanthi 

      5 years ago

      thanks for wonderful notes

    • profile image

      TEHMAS 

      5 years ago

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      5 years ago

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