The law of diminishing marginal utility was first developed by a German economist Hermann Heinrich Gossen in 1854. It is also known as the first law of Gossen. This law was modified and popularized by Alfred Marshall. This law states that the marginal utility derived from the consumption of every additional unit of a commodity goes on diminishing, other things remaining the same.
According to Alfred Marshall," 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."
This law says that the additional level of satisfaction goes on diminishing with every increase in units of consumption within the same period of time. When a consumer consumes more and more units of the same commodity, the successive level of utility diminishes.
- The consumption is rational.
- Price of the commodity remains constant.
- Income of the consumers remains constant.
- There is no any time gap between the consumption of different units.
- Size of commodity is suitable.
- There is no change in taste, nature, fashion and habits of the consumer.
This law can be explained with the help of the table below:
|Units of Orange||Marginal Utility(MU)|
The table above shows that the first unit of apple yields 8 utils of marginal utility to the consumer. The second unit of apple yields less marginal utility than the first one, i.e. 6 utils. The third unit yields still less marginal utility, say 4 utils and the fourth apple just 2 utils of marginal utility. The fifth unit of apple yields zero marginal utility. If the consumer is forced to consume the sixth unit of apple, the consumer may get negative utility, i.e. -2 utils. It is the evident from the above table that as more and more units of apples are consumed, the marginal utility from each successive unit goes on diminishing.
This law can be graphically explained with the help of the figure below.
In the above figure, the units of apple and the marginal utility are measured on X-axis and Y-axis respectively. MU is the marginal utility curve. It slopes downward from left to right(negative slope) indicating that the first unit of apple yields 8 utils, the second 6 utils, the third 4 utils and the fourth 2 utils of marginal utility. The fifth unit yields zero marginal utility. Therefore, MU curve touches X-axis when the consumer consumes the fifth unit of apples. The sixth unit of apples yields negative marginal utility and so MU curve goes below X-axis.