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The Law of Diminishing Marginal Utility

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

This law expresses the mode of consumer satisfaction of a commodity. The principle behind the law of diminishing marginal utility is that, as we consume more and more of a commodity, the utility that we derive from that commodity keeps diminishing. According to this law as a person purchases more and more units of a commodity, its marginal utility keeps decreasing. 

Prof. Boulding defines the law of diminishing marginal utility in the following words,” As a consumer increases the consumption of any one commodity, keeping constant, the consumption of all other commodities, the marginal utility of the variable commodity must eventually decline”. 

Marshall has defined the law thus: “the additional benefits which a person derives from a given stock of thing diminish with every increase in the stock that he already has”. 

This law simply states that as the consumer consumes more and more units of a particular commodity, the marginal utility of additional unit goes on diminishing. But the law does not state the rate of decline. 

Illustration of the law 

To illustrate the tendency of the diminishing marginal utility, a hypothetical utility schedule computed through the introspective method of inquiry in consumers consumption experience is stated as follows: 

From the table it appears as the unit of commodity ‘x’ consumed increases, the marginal utility derived from each successive unit tends to diminish, eventually, marginal utility may become zero and ultimately negative. Zero marginal utility implies complete satisfaction of a given want. It must, however be remembered that, marginal utility varies inversely with the consumption of the stock of a given commodity. The variation is not necessarily proportionate or uniform. Any further addition to consumption after zero, marginal utility becomes negative. A negative marginal utility indicate disutility or dissatisfaction resulting from excessive consumption of a commodity. 

The relation between marginal utility and total utility can be illustrated by means of a diagram. 

The successive units of a commodity consumed are represented on ’x’ axis and total and marginal utility is represented on ‘y’ axis. As indicated in the diagram the total utility curve ascends reaches the maximum and then begins to decline while marginal utility curve falls sharply touches the ‘x’ axis. Where marginal utility is zero and then it becomes negative.

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