Law of Diminishing Marginal Utility – Concept & Features

Simple Example 🍕

Imagine you are very hungry and start eating slices of pizza.

• 1st slice → Very high satisfaction (utility).
• 2nd slice → Still high, but less than 1st.
• 3rd slice → Satisfaction increases a bit more, but slower.
• 4th slice → You start feeling full.
• 5th slice → You may feel uncomfortable – utility may fall.

This fall in additional satisfaction from each extra unit is called Diminishing Marginal Utility.

Key Concepts

• Utility: Want-satisfying power of a good.
• Total Utility (TU): Total satisfaction from consuming all units.
• Marginal Utility (MU): Additional satisfaction from consuming one more unit.

MU = Change in TU / Change in Quantity

Statement of the Law

"Other things remaining constant, as a consumer consumes more and more units of a commodity, the marginal utility derived from each successive unit diminishes."

Conditions: Income, tastes, prices, time period etc. remain constant.

Numerical Illustration

Suppose a student eats samosas:

• TU increases at decreasing rate and then becomes maximum.
• MU falls and can become zero or negative.

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Features of the Law

1. Inverse Relation

   • As quantity consumed increases, MU decreases.

2. TU Increases at Decreasing Rate

   • Initially TU rises quickly, then slowly, then becomes maximum when MU = 0.

3. MU Can Become Zero or Negative

   • When you are fully satisfied, extra unit gives zero utility.
   • After that, extra unit can cause discomfort → negative utility.

4. Universal Law

   • Applies to most goods (food, drinks, entertainment, etc.).

5. Depends on "Other Things Remaining Constant"

   • Tastes, income, habits, etc. assumed constant.

Assumptions

• Rational consumer – aims to maximize satisfaction.
• Homogeneous units – all units are identical.
• Continuous consumption – no long time gap between units.
• Constant income, price, tastes.
• Utility is measurable (cardinal approach).

Importance of the Law

• Basis of Law of Demand – as more is consumed, willingness to pay falls.
• Explains why downward-sloping demand curve.
• Used in progressive taxation – extra income gives less utility.

Quiz Time 🎯

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Key Takeaway: The more you consume of a good in a short time, the less extra satisfaction you get from each additional unit – this is the heart of the Law of Diminishing Marginal Utility.