The Law of Diminishing Marginal Utility
The law of diminishing marginal utility is the basis of the marginal utility approach. Marginal utility refers to the change in satisfaction when a little more or little less of that good is consumed. The law of diminishing marginal utility states that "the additional benefit which a person derives from· a given increase in stock of a thing diminishes with every increase in the stock he already has' (Marshall). The utility decreases with additional consumption because the intensity of need of the consumer goes on decreasing.
The law of diminishing marginal utility recognises that wants of an individual are unlimited and each single unit is satiable. Therefore, when a person consumes additional units of a good his total utility increases till a certain level while the extra utility derived from the consumption of successive unit of the good decreases, total utility is maximum when marginal utility approaches zero and then starts decreasing. Table 3.3 shows the total utility (TU) and marginal utility (MU) derived from cups of tea consumed per day.
|
Toa Consumed (cups/day)
|
Total Utility (units)
|
Marginal Utility (units)
|
|
0
|
0
|
-
|
|
1
|
14
|
14
|
|
2
|
23
|
9
|
|
3
|
27
|
4
|
|
4
|
27
|
0
|
|
5
|
24
|
-3
|
|
6
|
18
|
-6
|
Fig. 3.6 illustrates the law of diminishing marginal utility. When one cup of tea is taken per day, the TU derived by the person is 14 utils (unit of utility) and MU derived is 14 utils. With the consumption of second cup per day the TU rises to 23 and MU falls to 9. At 4 cups TU is maximum and MU is zero. Beyond this the MU becomes negative and TO begins to decline the downward sloping diminishing MU curve depicts the law of diminishing MD.
The law applies-to all goods and services except in case of money, music and hobbies. But beyond a certain limit they are also subject to diminishing utility. Therefore, the law of diminishing MD generally operates universally.
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