Question

Define marginal utility. State the law of diminishing marginal utility.

Answer 1

Marginal utility refers to additional utility obtained from the consumption of an additional unit of a commodity. To illustrate, if 10th unit yields satisfaction of 100 utils, while 11th unit yields satisfaction of 105 utils, then marginal utility derived from the 11 th unit is 5 utils.

Law of diminishing marginal utility states that as consumption increases, marginal utility tends to decline. It is known as fundamental psychological law.