Posted by Anjali Kaur on Jun 30, 2020
What is the law of diminishing marginal utility?

What is The Law of Diminishing Marginal Utility?

This law is a part of consumer behavior, and it talks about the behavior of the consumer when they consume any commodity in excess. If you want. Then revise; the basics of consumer behavior and the cardinal utility approach before going through this law. Ready? Let’s learn.

What is LDMU?

LDMU stands for the law of diminishing marginal utility. This law states that as a consumer consumes more and more units of a specific commodity, the utility (satisfaction) derived from each successive unit consumption goes on falling. This law was given by H. Gossen.

What are the assumptions of the law of diminishing marginal utility?

  1. Cardinal Measure of Utility: It means to measure utility in numbers like 1,2,3,4, and so on.
  2. Standard Unit of Measurement: The unit of measurement should not be very large or very small. Water consumption will not be measured in drops or spoon but through a glass or bottle.
  3. Continuous Consumption: No time gap between consumption.
  4. Constant Marginal Utility of Money: The Marginal Utility of money for purchasing of goods should remain constant.
  5. Diminishing Marginal Utility: The utility or satisfaction will fall from the consumption of successive units.
  6. Income: The income of the consumer remains the same.

How to present the law of diminishing marginal utility with a graph?

To show LDMU graphically we need an imaginary table of Total Utility and Marginal Utility:

Units ConsumedTotal Utility(TU)Marginal Utility(MU) Formula used
00
11010 (10-0/1-0)
2188 (18-10/2-1)
3246 (24-18/3-2)
4284
5302
6300
728-2 (28-30/7-6)

From the table and the graph we can observe the following relationship between TU and MU:

  1. When TU is increasing, MU is decreasing. So, as the consumer is increasing consumption, MU is diminishing.
  2. When TU is at its maximum, MU becomes 0. So, with further consumption, MU falls to zero.
  3. When TU starts falling, MU becomes negative. With further consumption, we get negative MU, which is lesser than zero.

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