Question

Discuss the assumptions of the law of diminishing marginal utility.

Answer 1

Law of diminishing marginal utility states that as the consumption of a commodity rises, marginal utility tends to fall. It is known as the fundamental psychological law.

Assumptions:

1) It is assumed that the unit of the consumer good is a standard one.

2) It is assumed that utility is measurable and can be expressed in quantitative terms.

3) The consumer's tastes and preferences remain same during the period of consumption.

4)There must be continuity in the consumption.

5) Marginal utility of money remains constant.

6) Income and prices of the goods remain unchanged during the period of consumption.