Question

Give Reason or explain the following:
Assumptions of the law of Diminishing Marginal Utility.

Answer 1

Assumptions of DMU:

• Cardinal measurement of utility: it is assumed that utility can be measured and it can be expressed in numerical terms as 1, 2, 3, etc.
• Monetary measurement of utility: it is assumed that utility can be measured in monetary terms.
• Continuous consumption: it is assumed that consumption is a continuous process. For example, if one ice-cream is consumed in the morning and another in the evening, then second ice-cream may provide equal or higher satisfaction.
• No change in quality: quality is assumed as uniform and constant.
• Fixed income and prices: it is assumed that income of the consumer and prices of the goods are assumed to be constant.