Law of diminishing marginal utility (DMU)states that as we devour an ever increasing number of units of a ware. So, the utility derive from each successive unit goes on decreasing. Moreover this law holds true under certain assumption. Certainly a reasonable quantity of the commodity is consume and that consumption is a continuous process. Therefore, this law can be explain with following utility schedule.
|Units of Commodity- X||MUx|
Assumptions of Law of Diminishing Marginal Utility
- The customer who is expending the products ought to be intelligent and educated to devour each unit of merchandise.
- The goods which are to be consume should be equal in size and shape.
- So, consumer should consume the goods without time gap.
- The buyer’s pay, inclination, taste and style ought not be changed while expending the merchandise.
- Every one of the items devoured by the buyer are said to be free of one another, for example, the minimal utility of one product has no connection with the negligible utility of another ware.
- Subsequently it is assume that the income of the consumer and the price of goods and services remains unchanged during the period of consumption.
- Therefore, the marginal utility of money remains constant for the consumer.
- The state of mind of the purchaser ought to stay ordinary during the utilization time frame. For instance, if a person drinks any alcoholic drink, then he will derive more pleasure with each additional glass of drink, this is because of a change in his mental status due to intoxication.
- That is to say a consumer spends money on the commodity. So, he is left with lesser money to spend on other commodities. Further in this process, the remaining money becomes dearer to the consumer and it increases MU of money for the consumer. But, such an increase in MU of money ignore and it is assume that MU of money remains constant.