In economics utility is defined as the power or capacity of a commodity to satisfy human need thus marginal utility of a good or service is the benefit gained from consuming one addition unit.
The law of diminishing marginal utility states that
As a person increases consumption of a product while keeping consumption of other products constant there is a decline in marginal utility that person derives from consuming each additional unit of that product.
In simple words,as you consume more and more of a product the satisfaction derived from that product will start decreasing after a certain point.
You all must have heard the famous quote by Acharya Chanakya
Excess of anything is bad
This is the law diminishing marginal utility.
I am sure that ,if you have gone through micro economics,you must have read or heard about this concept and law.
It can be explained by an example:
Let’s suppose you have a fast today and eagerly waiting for opening it.Now you are opening your fast with maggi. You will eat a packet of maggi then other and so on. Your consumption unit, marginal utility and total utility are give as:
So from here at the time of three unit of consumption it is saturation point and at fourth unit of consumption is disutility as disutilisation of goods and services started as you don't wanna consume more of that. You are satisfied enough till the 3rd unit.
This law is also very much applicable in our daily life,our day to day activities or even in our relationships,when one of two partners leave the second 😂 .
Following are the assumptions of law of diminishing marginal utility:-
1.Standard Unit- Assumes that there must be a standard for unit of consumer good.
2.Consistency- Tastes and preferences of consumer must remain same during consumption period.
3.Continuity- Consumption of goods should be continuous and have less time interval.
4 Reasonability - Units of goods must be of standard size.
5.Rationality- Requires that behaviour and mental condition of consumer should be normal during consumption period.
Some of important limitations of law are:-
1.Unrealistic assumption- Include homogeneity, continuity and consistency condition.
2.Inapplicability to certain goods- Cannot be applied to goods such as television and refrigerator because theiro consumption is not continuous.
3.Constant marginal utility of money:- Assumes marginal utilty of money remains constant.
4.Change in other people stock- Implies that utility of consumer is dependent on what other people have in their stocks.
5.Other possession- Utility depends up on a possession owned by them.
Exception of law are as follows:-
1.Hobbies- Implies that the law of diminishing marginal utility is violated in case of hobbies of individual because they derive more and more utility from additional unit gained from a hobby item.
2.Misers- Can’t be applied in case of miser because they derive more and more utility from more and more good.
Utility is a feeling of satisfaction and pleasure derived from a product
Demand of goods depend amount of utility derived from that good. Therefore, it’s necesssary to measure utility to determine demands of goods.
Hope You Understood this Concept
Thank You
©The Successlogy
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