Question

With the help of diagram, write in brief the Law of Diminishing Marginal Utility.

Hint:

Always remember the "Satiety Point": It is where the MU curve intersects the X-axis. At this point, the consumer has no desire for another unit of the good.

Answer 1

Step 1: Understanding the Concept:
This law, proposed by H.H. Gossen, describes a fundamental human psychological behavior regarding satisfaction.
Step 2: Detailed Explanation:
Statement: "The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has."
Assumptions: The consumption must be continuous, units must be of standard size, and the quality must be identical.
Graphical Representation:
- On the X-axis, we plot the quantity consumed.
- On the Y-axis, we plot Marginal Utility (MU).
- The MU curve slopes downward from left to right.
- Positive MU: Utility is adding to total satisfaction.
- Zero MU (Satiety Point): Total Utility (TU) is maximum; the consumer is fully satisfied.
- Negative MU (Disutility): Consuming further leads to dissatisfaction; TU begins to fall.
Step 3: Final Answer:
The law shows that the first unit of consumption gives the most satisfaction, and subsequent units give less and less, eventually leading to zero and negative utility.