STEMAcademiaAgriculture & FarmingHumanitiesSocial Sciences

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

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      rosmi 2 weeks ago

      Good

    • profile image

      manveer 5 weeks ago

      Very good as compare to bookish language

    • profile image

      From Bhutan 5 weeks ago

      Thank u so much

    • profile image

      palanikumar.p 5 weeks ago

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

    • profile image

      simonika 8 weeks ago

      Thank you

    • profile image

      Tirth Salakiya 2 months ago

      thanks for simple explanation with suitable example

    • profile image

      bhargavi vs 2 months ago

      very nice explanation

    • profile image

      Walter onguru 3 months ago

      Well explained

    • profile image

      supriya 4 months ago

      thank u so much for your explanation

    • profile image

      Ayesha 4 months ago

      Thanks i understood every concept of this law

    • profile image

      Usha Mahato 5 months ago

      Ossam, I can easily understand. Thk u

    • profile image

      Sumit Mishra 6 months ago

      Thanks..that's really helping

    • profile image

      soona 12 months ago

      thanku

    • profile image

      bhija 24 months ago

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

    • profile image

      zoha ilyas 2 years ago

      thanks for help this...

    • profile image

      Almar khan 2 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 2 years ago

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

    • profile image

      Atul 2 years ago

      Awesome explanation

    • profile image

      princy 2 years ago

      Thank u so much

    • profile image

      navatha 2 years ago

      Thanks for the nice notes

    • profile image

      dev 2 years ago

      nice

    • profile image

      Towseef Ahmed Naik 2 years ago

      Fabulous I understand easily all contents

    • Hunbbel Meer profile image
      Author

      Syed Hunbbel Meer 2 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 2 years ago

      Superb very easy to understand thankq

    • profile image

      sayed moin chagan 3 years ago

      Thank you for given the notes

    • profile image

      nivadhya 3 years ago

      Thanks for the help

    • profile image

      arup 3 years ago

      Thanks for making me understand...

    • profile image

      Abhishek sawarn 3 years ago

      Just waooo.. Thank u

    • profile image

      arpan 3 years ago

      Really Good

    • profile image

      jayanthi 3 years ago

      thanks for wonderful notes

    • profile image

      TEHMAS 3 years ago

      GOOD FOR THE STUDENT AND EVERY ONE USE THIS WEB SITE

    • profile image

      jameel wattoo 3 years ago

      Goooooooooood