The law of the diminution of marginal utility is a widespread concept in the world of economics. This helps us understand why a consumer is less and less satisfied with the consumption of each additional unit of a good. The law is based on the theory of ordinal utility and requires that certain assumptions be true. However, there are exceptions to the law as it may not apply in some cases. Explain and explain the law of diminishing marginal utility and explain its exceptions. However, these exceptions are only obvious. Since they violate one or the other hypothesis of the law and therefore do not constitute real exceptions. Here are some exceptions to the law of diminishing marginal utility: The concept of progressive taxation is based on this law. Since it is assumed that with the increase in the consumer`s income, the UM of money for him/her will fall. The added value that a person derives from a certain increase in his stock to anything decreases with the growth of the stock he already has. 5) Money: It is said that the MU of money never becomes zero. It increases as the stock of silver increases.
Indeed, money is a medium of exchange used to satisfy various needs. However, according to some economists, this law also applies to money. For example, the marginal utility of money is more for a poor person than for a rich person. The law of diminishing marginal utility applies only to ordinary people. Abnormal individuals such as drunks and drug addicts are not affiliated with the law. 4) Power: This is an exception to the law, because when a person acquires power, his thirst for power increases. He wants to have more and more. However, this in turn violates the assumption of rationality. It also serves as the basis for other economic laws such as consumer equilibrium, the law of demand, and the law of equimarginal utility. The “value paradox,” also known as the “diamond-water paradox,” which helps determine the price of a product, is also supported by the law of decreasing marginal utility. This law applies to all types of consumer goods, such as durable and non-durable goods.
The usefulness of a good is measurable in a quantitative term called uses. Now let`s get to know the law of diminishing marginal utility with an example. Let`s say that a consumer consumes only good X. 2) Miser: In the case of a miser, each additional rupee gives him more and more satisfaction. The marginal utility of money tends to increase with an increase in its stock of money. However, this situation ignores the hypothesis of rationality. Figure 2 shows that the TU curve increases with an increase in the number of units of the good X. It reaches the saturation point when a maximum level of 35 utils is reached. After that, the UT begins to decline as the fifth unit is consumed. In Figure 2, the MU curve decreases as the consumption of good X increases. In the fifth unit, where TU is maximum, MU reaches zero and becomes negative.
At this point, the TU also begins to fall. The law of diminishing marginal utility is a microeconomic approach accepted by some economists and rejected by others who believe that the utility of products cannot be measured in units. Definition: The law of decreasing marginal utility explains that with the consumption of each subsequent unit of a commodity, the expected or derived satisfaction continues to decrease. The point at which the consumer no longer feels the need to consume a particular product is called the “satiety point”. This is the point at which the marginal utility curve crosses the axis when represented in a graph. This law is of considerable importance to economists, government, business units and researchers. The main need for a reduction in the marginal utility duty is as follows: Suppose there is a manufacturer who has a great demand for his products. To meet this demand, the manufacturer will employ more workers. But at some point, there will be a time when hiring more workers won`t really benefit the organization.
In fact, hiring more workers only reduces output per worker, since the quantity demanded is the quantity of a particular product at a certain price. It changes with the price change and does not depend on the equilibrium of the market. Read More was hit by a smaller number of workers. This example illustrates the law of the decrease of marginal utility, since at some point, the hiring of additional workers no longer benefits the organization. Suppose a person is very hungry and has not eaten anything all day. When he finally starts eating, the first bite will give him a lot of satisfaction. As he eats more and more, his appetite will decrease and get to a point where he no longer wants to eat. First, let`s understand the concept using some very basic examples of the law of decreasing marginal utility. According to Prof. Alfred Marshall: “Other things that remain constant, the added value that a person derives from a given increase in his supply of a thing, decreases with each increase in the stock he already has. According to the law of the decrease in marginal utility, Table 1 shows a downward trend as more and more units are consumed. The question arises as to why MU is decreasing.
This is due to the fact that the benefit derived from the good consumed depends on the consumer`s need for that good. Implies that consumer tastes and preferences must remain the same during the period of consumption. If consumer tastes change, the law may not apply. Diamonds that are rare have a high MU, which leads to its high rate. Since water is readily available, it has a low MU (although it has a high overall advantage), which makes it remarkably cheaper compared to diamonds. The law of diminishing marginal utility is one of the vital laws of economics. Implies that the law of diminishing marginal utility cannot be applied to goods such as televisions and refrigerators. This is because the consumption of these goods is not continuous.
3) Addictions: In a drunkard, it is observed that the degree of intoxication increases with each additional unit of alcohol. Thus, MU, which is received by drunkards, can increase. In fact, it is only an illusion. This condition is similar to almost all dependencies. However, this violates the assumption of rationality. Requires that the consumer`s behaviour and mental state be normal during the period of consumption. According to the law, when a consumer increases the consumption of a good, there is a decrease in MU, which is derived from each subsequent unit of that good, while the consumption of other goods remains constant. At point F, we can see that marginal utility becomes negative, suggesting that X receives negative satisfaction from its consumption. Profit is a feeling of satisfaction, pleasure or happiness. The demand for a good depends on the amount of benefit a consumer derives from that good.
Therefore, it is necessary to measure benefits to determine demand for goods or services. Suppose there must be a standard for the unit of a consumer good. For example, a cup of coffee, a pair of shoes, a glass of milk and a plate of food. Expensive and durable goods: This law does not apply to goods that contain colossal sums and usually last for years. The reason for this is that the consumer will not repeatedly spend on such things; Some of them are diamonds, goods and vehicles. As we know, the law of diminishing marginal utility is not universally applicable in all situations. The law does not apply to durable goods as well as valuable goods such as buildings, vehicles, precious stones, gold, etc. Rare or ancient collection: The law of diminishing marginal utility is not applicable to rare collectibles such as paintings, antiques, antique coins, stamps, etc. Because the customers of these products always aspire to more of them. If we were to represent the law of decreasing marginal utility with a diagram, it would look like the following figure. In this figure, the x-axis represents the number of units of a good consumed and the y-axis represents the marginal utility of that good.
Note that when we increase the number of units, utility marginal social use, the marginal utility of a customer is the satisfaction or benefit that results from an additional unit of product consumed. It could be calculated by dividing the additional benefit by the number of additional units. Learn more about each additional unit falls. It continues to fall until it becomes zero, then continues to fall to become negative. This means that at some point, the consumption of this good will cause dissatisfaction of the consumer. Implies that units of goods must have a standard size. For example, it should be a glass of water and not a spoonful of water. If the size of a commodity is too small or too large compared to the standard size, the law may not apply. Like other economic concepts, the law of decreasing marginal utility is criticized by some economists for the following disadvantages: In the figure, the X axis represents the units of orange and the Y axis represents the advantage. MU is the marginal utility curve that goes down from left to right. This means that as a consumer consumes more and more units of a commodity, the marginal utility he derives from the additional unit of consumption continues to decrease, becoming zero (at point D) and even negative (at points E and F). Suppose that silver MU remains constant, which is unrealistic.
There is also a gradual decline in the MU of money. Simply put, the law of diminishing marginal utility explains that everything has its advantage, which decreases with the use of any unit that decreases that advantage.
