Assumptions of Law of Diminishing Marginal Utility

According to the concept of law of diminishing marginal utility as the consumer increases the consumption of a good or service, while keeping other things constant there is decline in the utility or satisfaction which one derives from the usage of that good or service. Example of law of diminishing marginal utility is when you are hungry and as you eat something you fell good but as keep eating more food you begin to get less satisfaction out of eating food. Let’s see some of the assumption of law of diminishing marginal utility –

1. The consumer who is consuming the good or service should be rational or in other words his or her behavior should be rational.

2. The consumption of good or service in question should be continuous.

3. Another assumption of law of diminishing marginal utility is that there should be no change in taste & preferences of consumer who is consuming the good or service.

4. The quantity of the good consumed should remain same every time, so it should not be reduced as consumer increases the consumption of good.

5. Consumer should consume good without any prejudice so in the above example of food if the consumer came to know that he or she will not get food for next few hours then he or she may consume more food than necessary.

0 comments… add one

Leave a Comment

Related pages

substitute goods economicshorizontal analysis in accountingfeatures of derivative marketfunctional departmentationforeign trade advantages and disadvantageswhen is a trial balance preparedunitary elasticity of demanddrawbacks of globalisationdisadvantages of foreign direct investmentadvantages and disadvantages of mixed economiesfeatures of perfectly competitive marketcapital withdrawal journal entrymeaning of fifo methodforeign trade advantages and disadvantageswhat is convention of materialityimportance of capital budgeting decisionsdifference between induced investment and autonomous investmentidentify the advantages and disadvantages of a command economywhat is debit note with exampledeferred revenue expenditure accounting treatmentneeds and importance of demat accountwhat is the difference between accounts payable and accounts receivableexample of accumulated depreciationskimming pricing and penetration pricingpayback method disadvantagesdifference between bank rate and msfmeaning of penetration pricingconvertibility of currencymarket economy advantages and disadvantagesvostro account definitiondiff between cash flow and fund flowhorizontal analysis definitionmeaning of consignerfull form of fdiconsumer nondurable goodsadvantages of monopolisticmeaning of advantage in hindiwhat does horizontal merger meanconvenience goods marketingmeaning of fifo methodscheduled commercial bank meaningbrs statementadvantages and disadvantages of discounted cash flowautocratic organizationdisadvantages of target marketingdisadvantages of centrally planned economytypes of dividend policy in financial managementmerits and demerits of social mediapure competition market structurehire purchase advantages and disadvantagescentrally directed economyadvantages of takeoversadvantages and disadvantages of bank loansdefinition of profitability ratioswhat is the meaning of consignmentjunk bonds advantages and disadvantageshow to record accrued revenueinferior goods meaningdefinition consignordisadvantages of online banking to customersbarter trade systemforward exchange rate contractjit production advantages and disadvantagesvertical and horizontal analysis of financial statementsrelationship between bond prices and interest ratesinvestment appraisal methods advantages and disadvantagestypes of accounts personal real nominalunbilled deferred revenueexplicit cost in economicsbenefits of ppffeatures of perfect competition and monopoly