Law Of Diminishing Marginal Utility

Satisfactions of human wants follow some very important laws and one of them in the law of diminishing marginal utility. The law refers to the common experience of every consumer. Suppose a person start-eating piece of bread one after another. The first toast gives him great pleasure. By the time he start taking second, the edge of his appetite has been blunted, and the second toast, meeting with a less urgent want, yield less satisfaction, the satisfaction of third less than of the second, and soon. The additional satisfaction goes on decreasing with every successive toast till it drops down to zero. If the customer is forced to take more the satisfaction may become negative or the utility may change in disutility.

Therefore, Law of diminishing utility may be stated as follow.

Each unit of commodity gives, other things remaining the same, less utility to the consumer than the foregoing unit.”

Marginal and total utility

The last unit of commodity consumed at any particular time is known as final or marginal utility. Example: If a man takes two oranges at the time, yielding 10 and 9 units of utility respectively, the second unit is marginal unit and its utility namely 9, is the marginal utility of oranges.

Essential conditions: Marginal utility is based upon two essential conditions:

Consumption should take place at any particular time or the act o consumption should be regular and unbroken.

The utility in question should be the utility of the marginal or final unit that is consumed.

Illustration: Suppose a big family consumes several kg of wheat at a time. If it purchases only one kg of wheat, then it would be the marginal unit, and its utility.

Suppose it is 100, could be the marginal utility. If it is purchase another kg of wheat then second kg becomes the marginal unit, and its utility becomes the marginal utility. If this family purchases 5 kg of wheat the marginal utility declines.

Total utility:

Definition: The sum of the utilities of all the commodities consumed at a particular time is known as total utility.

Example: If you eat five oranges at the time the sum of the utilities of all the five oranges will be the total utility.

As we consumed more and more of the commodity, the total utility derived from its consumption goes n increasing, but this increase takes place at the diminishing rate( or less than proportionality) because of the operation of the law of diminishing utility.

For instance if the utility of the first unit of orange is 100, the utility of the second unit is 80, so that when two units are consumed, the total utility come as to 180.

Units Marginal utility of Oranges Total utility

1 100 100

2 80 180

3 60 240

4 20 260

5 10 270

6 0 270

7 -20 250