UTILITY & LAW OF DIMINISHING MARGINAL UTILITY

UTILITY: Utility is the capability of commodity which could satisfy any human wants. It is a mental Phenomena because physical or physiological characteristics differ from person to person.

MARGINAL UTILITY ANALYSIS

The marginal utility analysis explains consumers demand which shows an inverse relationship between the quantity demanded and the price of the commodity.

CARDINAL MESARUREMENT OF UTILITY

Marginal utility analysis assumes in the first place that utility can be measured and the exact measurement can be given by assigning definite numbers such as 1,2,3 etc.. that is it is assumed that utility is a quantifiable entity.

LAW OF DIMINISHING MARGINAL UTILITY

Satisfaction of human wants follow some very important laws and one of them is the Law of Diminishing marginal Utility. The law refers to the common experience of very consumer. Suppose a person starts eating pieces of bread one after another. The first toast fives him great pleasures. By the time he starts taking the second., the edge of his appetite has been blunted, and the second toast, meeting with a less urgent want, yields less satisfaction; the satisfaction of the third will be less than that of the second; that of the fourth less than that of the third and so on. The additional satisfaction will go on decreasing with every successive toast till it drops down to zero; and if the consumer is forced to take more, the satisfaction may become negative, or the utility may change into dis-utility. Marshal states the law thus,”The additional benefit which a person derives from a given increase of his stock of a thing diminishes with very increase in stock that he already has.”


ASSUMPTION:

The law of diminishing marginal utility as enunciated above is based on certain assumption.

  1. suitable units
  2. Suitable time
  3. No change in consumers tastes
  4. Normal Person
  5. constant income
  6. Not applicable to money.

MARGINAL UTILITY

Marginal utility can be defined as the change in the total utility resulting from a one-unit change in the consumption of a commodity per unit of time.