Define the law of diminishing marginal utility. State its assumption
Answers
Meaning :-
The law of diminishing marginal utility was originally explain by Hermann Heinrich Gossen in 1854. Jevans called it as Gossen's first law. But Alfred Marshall popularised this law and analysed it in a scientific manner.
Definition of the law by Alfred Marshall
"The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in stock that he already
Assumptions
1) Rationality: The consumer is a rational human being in the sense that he seek to maximize his satisfaction.
2) Cardinal Measurement of Utility : Utility is a cardinal concept, i.e. utility is measurable quantitatively. It can be measured in cardinal numbers.
3) Independent Utility : The utility of any commodity depends on its own quantity, i.e. utility of goods are independent.
4) Constant Marginal Utility of Money: The marginal utility of money remains constant.
5) Homogeneous Goods : Goods are homogeneous in the sense that they are alike both quantitatively and qualitatively.
6) Uniform Size of Goods : Goods should be of suitable size, i.e. neither too big nor too small. They should be identical.
7) No Time Lag : There is no time lag between the consumption of one unit to another unit.
8) Divisible Commodity : Commodity is divisible.
9) No Change in Consumer Behaviour : The income, tastes and preference of the consumer should remain constant.
10) Full Knowledge of the Market : Consumer will have full knowledge of market.