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Assumptions of the Law of Diminishing Marginal Utility

Written By Unknown on Thursday 20 June 2013 | 13:29

The law of diminishing marginal utility is conditional. Its validity is attributed to the following assumptions or conditions: 

1. Homogeneity: 

The law holds true only if all the successive units taken in the process of consumption are homogeneous in character like quality size, taste, flavors, colour etc. If there is a change in the characteristics of the units of the given commodity, it is quite likely that the marginal utility may tend to increase rather than diminish with the successive addition unit of consumption. 

2. Continuity: 

The consumption process is continuous at a given time, that is, units are taken one after another successively without any interval of time. Indeed, the first cup of tea in the morning, and the second one in the evening will not result in diminishing marginal utility. 

3. Reasonability: 

The units of consumption are in reasonable size, that is, of normal standard unit. For instance, we should think of a glass of milk, a cup of tea etc. and not a spoon of milk or tea. 

4. Constancy: 

The law presumes that, there is no change in income, taste, habit or preference of the consumer. Similarly, the price of the commodity is also assumed to be given. 

5. Rationality: 

The consumer is assumed to be a rational economic man whose behaviour is normal and who is aiming at maximization of satisfaction. 

Above all, the Marshallian exposition of the law of diminishing marginal utility is based on the cardinal measurement of utility. It is assumed that utility can be numerically expressed by the consumer, that is, he is capable of mentioning the quantum of utility derived from each additional unit consumed or acquired by him.

Notes provided by Prof. Sujatha Devi B (St. Philomina's College)
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