Saturday, August 18, 2012

Assumptions and Limitations of the Law of Diminishing Marginal Utility:

Assumptions and Limitations of the Law of Diminishing Marginal Utility:
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Assumptions and Limitations of the Law of Diminishing Marginal Utility:
Here we briefly study the Assumptions and Limitations of the Law of Diminishing Marginal Utility.

Let us discuss them one by one.

Assumption of the Law of Diminishing Marginal Utility:

This law of diminishing marginal utility will be true under the following Assumptions:

1) Consumption to be continuous:
It is assumed that the consumption of commodity should be continuous. If there is interval between the consumption of the same two units of the commodity, the law of diminishing marginal utility may not hold good.

2) Reasonable units:
The 2nd assumption of the law of diminishing marginal utility is that the commodity consumed is taken as suitable and reasonable units. If units are too small, then the marginal utility instead of falling may increase up to a few minutes.

3) Character of the consumer does not change:
The law of diminishing marginal utility holds true if there is no change in the character of the consumer. For example a consumer develops a taste for tea; the additional units of tea may increase the marginal utility to an addict.

4) No change in Fashion or Taste:
If there is a sudden change in fashion, custom, or taste of a consumer, it can make the law of diminishing marginal utility inoperative.

5) Change of Income:
If there is a change in the income of the consumer, the law may not operate.

Limitations of the law of Diminishing Marginal utility:
Following are some limitations of the law of Diminishing marginal utility.

1) Knowledge:
The desire to acquire knowledge increase as a person gets the education.

2) Wealth:
The law of diminishing marginal utility does not affect the stock of wealth, because a person who has a large amount of wealth, his desire to have more wealth increases as the stock of wealth increases.


 

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