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Answer in details:
State and explain law of Diminishing Marginal Utility and explain its exceptions.

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Solution

  • Law of Diminishing Marginal Utility (DMU) states that as we consume more and more units of a commodity, the utility derived from each successive unit goes on decreasing.
  • People spend their income on various goods because consuming more and more of anyone good reduces the marginal satisfaction obtained from further consumption of the same good.
  • Law of DMU has universal applicability and applies to all goods and services.

Exception to the law of DMU, where this law doesn’t apply:

  • This law is valid only for uniform units of a commodity, which are same in shape, size, length, etc.
  • The law applies only in cases when the consumer doesn’t change his taste and fashion of the commodity remains same, which hardly is the case.
  • This law is not applicable for habitual goods of consumption like drugs, alcohol, etc.

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