describe the law of diminishing marginal utility its limitation and importance
Answers
Answer:
Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity
Explanation:
One of the characteristics of human wants is their limited intensity. As we have more of anything in succession, our intensity for its subsequent units diminishes. This generalization of satiable wants is known as the Law of Diminishing Marginal Utility.
Hermann Heinrich Gossen was the first to formulate this law in 1854 though the name was given by Marshall. Jevons called it Gossen’s First Law. Gossen stated it thus: “The magnitude of one and the same satisfaction, when we continue to enjoy it without interruption, continually decreases until satiation is reached.”
Taking the example of apples as shown in column (3) of Table 1, when our hypothetical consumer takes the first apple he derives the maximum satisfaction in terms of 20 utils. As he continues to consume the second, third and the fourth units in succession, he derives less and less satisfaction 15, 10 and 5 utils respectively. With the consumption of the 5th apple he reaches the satiety point because the satisfaction derived from that unit is zero.
Diagrammatically, the curve MU is the diminishing utility curve in Figure 1. It shows that marginal utility diminishes as more and more units of the commodity (apple) are consumed till the satiety point С is reached. Consumption of further units gives disutility, as shown by the movement of the curve from point С downwards towards MU below the X-axis.