GRADE 12-LAW OF

DIMINISHING MARGINAL
UTILITY
What is Utility?
◦ It is the Want satisfying Power of the commodity.

◦ Two main categories of Utility: TOTAL UTILITY & MARGINAL UTILITY

◦ TOTAL UTILITY: refers to the entire amount of satisfaction obtained from consuming a
given quantity of a commodity.

◦ MARGINAL UTILITY: refers to the additional utility derived by consumption of one more
unit of the commodity.

Symbolically, MUnth = TUn- TU n-1

 What is DMU?
◦ The law of Diminishing Marginal Utility(DMU) states that, as the
amount consumed of a commodity increases, other things
remaining equal, the utility derived by the consumer from the
additional units i.e. marginal utility, goes on decreasing.

◦ In other words, Marginal Utility of the commodity falls with an

increase in its consumption.

◦ A consumer will maximize his satisfaction when :

Price of the commodity = Marginal Utility of the commodity

 Utility Schedule for Mangoes

Units of Mangoes Total Utility (utils) Marginal Utility (utils)

0 0 undefined
1 10 10 (10 – 0)
2 17 7 (17- 10)
3 21 4 (21- 17)
4 22 1 ( 22- 21)
5 22 0 (22 – 22)
6 19 -3 ( 19 -22)

Satiation Point: Maximum Point, beyond which additional consumption reduces Total utility.
The Total Utility curve is concave from the above, indicating a
declining slope of the curve means declining marginal utility. Marginal
Utility decreases because total utility increases at a decreasing rate.

When total utility is maximum, marginal utility is zero. When Tu curve

reaches maximum, its slope is zero between M & N. Thus MU is Zero.

When total utility declines, Marginal utility is negative.

Assumptions of the Law
◦ All the units of the commodity must be identical (same in size, shape, color,
design, quality, etc.) For instance, if the quality of the second mango is
superior than second, then the consumer may derive more utility from the
second one.

◦ The unit of the good must be standard. ( not too large or too small).

◦ There should be no change in the taste during the process of consumption.

◦ There should be continuity in consumption. If the break is necessary, the

interval should be short.
◦ Utility is measurable.

◦ The consumer is rational while taking decisions.

◦ Marginal utility of money is assumed to be constant.

◦ There is no change in price of substitute goods.

Given these assumptions, law of DMU is generally applicable.

Explanation of the Law
◦ Individuals desire for a particular commodity is satiable.

◦ If there are many units of the commodity, the most urgent will be fulfilled first, followed
by the next important use and so on.