What is Law of diminishing utility

Law of Diminishing Utility
In this article, we will learn what is law of diminishing utility is by going through the law of diminishing utility definition. The law of diminishing marginal utility holds that as we consume more of an item, the amount of satisfaction produced by each additional unit of that good declines. The change in utility gained from utilizing an additional unit of a product is known as marginal utility.

What is Law of Diminishing Utility?
According to many economists like Dr Marshall, the law of diminishing marginal utility definition is when the additional benefit that a person derives from a given increase of his stock of anything diminishes with the increase in the stock that he already has. The law states that the more we have of a commodity, the less we want to have more of it as the utility derived from every success unit of the commodity keeps on declining when more is consumed.


John, for example, is starving and hasn't consumed anything for a while. When he eventually starts to consume, the very first piece will provide him with a considerable measure of satisfaction. As he continues to eat even more meals, his hunger will wane to the extent that he no longer wants to eat.

Assumptions of the Law:

• Units of commodities consumed should be identical or homogeneous, that is, the same in all respects.
• Units should be consumed in quick succession with minimal breaks in between.
• Units should be of a standard size, that is, neither too big nor too small.
• The taste of the consumers should be constant.
• There should be no change in the price of substitute goods. If the prices of substitute goods change, it may become difficult to have an idea about the utility that the consumer might get from the main commodity.
• The utility is measurable.
• The consumer is rational while making consumption decisions.

Relationship between Marginal Utility and Total Utility:

• When marginal utility falls but is positive, total utility increases in a diminishing manner.
• When marginal utility is zero, total utility is maximum.
• When marginal utility is negative, total utility declines.

Limitations of the Law of Diminishing Marginal Utility:
The law does not operate in the following cases:
Very Small Units: If the units of commodities are very small then the law does not operate.

Dissimilar units: The unit should be similar in size, quality etc. The law of diminishing marginal utility will not operate if the units that are consumed are not similar in size and quality.

Too long an interval: The law will also not operate if the units are consumed after long breaks.

Mentally unstable people: People like drunkards or drug addicts will get greater satisfaction with every successive dose of liquor. Hence, the law fails to operate in these cases.

Rare collections: This refers to hobbies. When people collect rare coins and stamps for example, in such cases the person’s satisfaction increases with every addition to his stock or collection. The law hence cannot operate.

Not applicable to money: Money is a commodity which is appreciated greatly by rich and poor. There is a saying that the more money a person has the want he wants of it, hence, the law cannot operate in the case of money.

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