Concept of the Law of Diminishing Marginal Utility and Its Assumptions
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Concept Of The Law Of Diminishing Marginal Utility And Its Assumptions Concept Of The Law Of DiminishingMarginal 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 themarginal 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.
Concept of the Law of Diminishing Marginal Utility and Its Assumptions
Concept Of The Law Of Diminishing Marginal Utility And Its
Assumptions Concept Of The Law Of DiminishingMarginalUtilityThis
law was first developed by a German economistHermannHeinrichGossen.
This law is also known as thefirst lawofGosse. The law of
diminishingmarginalutility states that themarginalutility derived
from the consumption of every additional unit goes on diminishing,
other thing remaining the same.The law of
diminishingmarginalutility is based on twoimportant facts:1. Though
human wants are unlimited, each single want is
satiable.2.Commodities arenot 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
reachedmarginalutility of a commodity becomes zero. Thus, as the
amount of consumption of a commodity increases,marginalutility
decreases. The second fact is that the differentcommodities arenot
perfect substitutes for each other. Hence, when
anindividualconsumes more and more units of a commodity, the
intensity of his particular want for the commodity diminishes.
Assumptions Of The Law Of DiminishingMarginalUtility
- Consumer should be rational.- Utility can be measured in the
cardinal number.-Marginalutility of money remains constant.- All
the units of consumption arehomogeneous.- 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.
