Question

State with reason whether you agree or disagree:

1. There are no real exceptions to the law of Diminishing Marginal Utility.

2. When MU is zero, TU diminishes.

3. Law of Diminishing Marginal utility is important in practice.

Answer 1

1) There are no real exceptions to the law of Diminishing Marginal Utility. - Disagree
Explanation:
The above statement is false. There are exceptions to the law of diminishing marginal utility. This law fails to operate in case of earning money, acquiring knowledge, consumption of liquor and cigarettes, hobbies such as jewellery collection by women, stamp collection, old coins, antiques, listening to good music and reading good poems again and again etc. In such cases, greater the consumption, greater is the utility derived.

2) When MU is zero, TU diminishes. - Disagree
Explanation:
The above statement is incorrect as, when Marginal Utility (MU) is zero, Total Utility (TU) attains its maximum point (i.e. the saturation point). On the other hand, when MU becomes negative, TU diminishes.

3) Law of Diminishing Marginal utility is important in practice. - Agree
Explanation:
Yes, the law of diminishing marginal utility is important in practice. The following are some of the points that highlight the importance of the law.

i. This law helps the consumers in budget planning.
ii. It helps the producers in determining various policies such as the price and sales policies.
iii. Keeping in consideration this law, a monopolist can easily follow the price discrimination policy.
iv. Formulate and implement appropriate policy decisions.