Law of diminishing marginal utility


The law of diminishing marginal utility describes a familiar and fundamental tendency of human behaviour. The law of diminishing marginal utility states that “as a consumer consumes more and more units of a commodity, the utility from successive unit goes on diminishing. Mr. H. Alfred Marshall later on restated this law in the following words “The additional benefit which a person derives from an increase of his stock of a thing diminishes with every increase in the stock that he already has”.

The basis of this law is fundamental feature of wants. It states that when people go to the market for the purchase of the commodities, they do not attach equal importance to all the commodities which they buy. In case of some commodities they are willing to pay more and in some less. There are two main reasons for this difference in demand (1) the liking of the consumer for the commodity and (2) the quantity of the commodity which the consumer ahs with himself. The more one has of a thing, the less he wants the additional units of it. In other words, the marginal utility of a commodity diminishes as the consumer gets larger quantities of it. This in brief, is the axiom of law of diminishing marginal utility.

The law of diminishing utility is based up two facts. First total wants of a man are unlimited but each single want can be satisfied. As a man gets more and more units of a commodity, the desire of this want for that good goes on falling. A point is reached when the consumer no longer wants any more units of that good. Secondly different goods are not perfect substitutes for each other in the satisfaction of various particular wants. As such the marginal utility will decline as the consumer gets additional units of a specific good.

Explanation of the law:
This law can be explained by taking very simple example. Suppose a man is very thirsty. He goes to the market and buys one glass of sweet water. The glass of water gives him immense pleasure or we say the first glass of water has great utility for him. If he takes second glass after that the utility will be less than that of the first one. It is because the edge of his thirst has been blunted to a great extent. If drinks third glass of water, the utility of third glass will be less than that of the second and so on. The utility goes on diminishing with the consumption of every successive glass of a water till it drops down to zero. It is the position of consumer’s equilibrium or maximum satisfaction. If the consumer is forced further to take a glass of water it leads to disutility causing total utility to decline. The marginal utility will become negative. A rational consumer will stop taking water at the point at which marginal utility becomes negative even if the good is free. In short the more we have a thing, the less we want still more of that or to be more precise “In a given span of time, the more of a specific product a consumer obtains, the less anxious he is to get more units of that product.” Or we can say that as more units of a good are consumed additional units will provide less additional satisfaction than previous units.