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Limitations of the Law of Diminishing Marginal Utility

Limitations of the Law of Diminishing Marginal Utility The law of Diminishing marginal Utility is subject to certain limitations. These limitations are of two types: (a) Exceptions and (b) Objections. In the law of diminishing marginal Utility it is assumed that the commodity is taken in suitable and reasonable units. If the units are too small, then the utility will at first increase instead of decreasing.

Limitations of the Law of Diminishing Marginal Utility

The law of Diminishing marginal Utility is subject to certain limitations. These limitations are of two types:

(a) Exceptions and

(b) Objections.

In the law of diminishing marginal Utility it is assumed that the commodity is taken in suitable and reasonable units. If the units are too small, then the utility will at first increase instead of decreasing. For example, if you want coal you must get sufficient quantity to make fire. If you are supplied with it only in handfuls, then for some time the utility will increase but as soon as you have got sufficient quantity any further increase will lead to a decrease in its utility.

The law of diminishing marginal utility further assumes that the commodity is taken within a certain time, otherwise the law will not hold good. If you take your meal at 10 a.m. and then at 6 p.m. of course the second meal will give you equal satisfaction or even more. But if you are asked to take another meal within an hour of your taking the first meal, the second meal will not have the same utility

Another assumption made in the law of diminishing marginal utility is that the character of the consumer does not change. The more music one hears or the more wine a drunkard takes or the more money a miser has, in each case the increase in commodity means increase in utility. This is so because the character of the consumer has undergone a change. He has developed a craving for more.

Further, the law of diminishing marginal utility does not apply to misers, drunkards, etc. It applies only to normal persons.

Moreover, the law of diminishing marginal utility assumes that the tastes, fashions, customs, and habits of the consumer remain unchanged. A change in any one or more of these may increase the satisfaction rather than diminish it and thus make the law inoperative in that case.

If the income of the consumer changes, then also the law of diminishing marginal utility may not hold good. For instance, a rise in a man's income may raise in his eyes the value of the various plots in his big compound of which he could not make much use before. The law of diminishing marginal utility does not hold good also in the case of rare collections. If a man is collecting ancient coins and stamps, the greater the stock, the greater the pleasure.

There is another exception. The law of diminishing marginal utilitysays the utility decreases when there is an increase in our stock but in some cases utility changes, not because of a change in our stock but due to a change in other people's stock. For example, if there is a rival in the town collecting coins and somehow he loses his collection, the utility of my collection automatically goes up, even though there is no change in my stock. A change in our other possessions or in fashion may also bring about changes in utility, although the stock remains the same.

Thus, we find that the law of diminishing utility, like other economic laws, is simply a statement of a tendency. It merely tells us that utility is likely to decrease if the stock increases. But whether it does actually decrease depends on so many conditions. If the conditions are not fulfilled, this does not apply as in the many exceptional cases mentioned above.

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