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Concept Of The Law Of Diminishing Marginal Utility And Its Assumptions

Concept Of The Law Of Diminishing Marginal Utility
This law was first developed by a German economist Hermann Heinrich Gossen. This law is also known as the first law of Gosse. The law of diminishing marginal utility states that the marginal utility derived from the consumption of every additional unit goes on diminishing, other thing remaining the same.

The law of diminishing marginal utility is based on two important facts :
1. Though human wants are unlimited, each single want is satiable.
2. Commodities are not perfect substitute for each other.

Therefore, as a consumer consumes more and more units of a commodity, intensity of his/her want for the commodity goes on falling and reaches a point where a consumer do not want any more units of the commodity. That is, when saturation point is reached marginal utility of a commodity becomes zero. Thus, as the amount of consumption of a commodity increases, marginal utility decreases. The second fact is that the different commodities are not perfect substitutes for each other. Hence, when an individual consumes more and more units of a commodity, the intensity of his particular want for the commodity diminishes.

Assumptions Of The Law Of Diminishing Marginal Utility

- Consumer should be rational.
- Utility can be measured in the cardinal number.
- Marginal utility of money remains constant.
- All the units of consumption are homogeneous.
- There is continuous consumption of the commodity i.e, there is no time gap between the successive units of consumption.
- The units of consumptions are suitable in size.
- There is no change in tastes, nature, fashion and habits of the consumer.

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Exceptions Of The Law Of Marginal Utility

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