Individuals can’t satisfy all their wants at the same time. But they can satisfy a particular want entirely. The added utility from the consecutive units of the commodity reduces and remains zero at the level of satiety. Therefore, marginal utility curve slopes downwards. There are some Assumptions and Limitations of Law of Diminishing Marginal Utility which are described below.
Assumptions and Limitations of the law of Diminishing Marginal Utility:
Marshall and other economists expressed and developed the Law of Diminishing Marginal Utility based on certain assumptions. These assumptions are also described as the limitations or the conditions of this law.
1. No time gap: The Law of Diminishing Marginal Utility holds good only when the consumers consume the different units of a commodity within a certain time frame. Otherwise, it is not applicable. For example, a consumer takes grapes one after another. His marginal utility of grapes diminishes with every increase in his consumption. On the other hand, if he takes one grape in the morning, another in the afternoon and the third in the evening, his desire for mangoes or grapes would increase instead of diminishing.
2. Homogeneous Units: The units of a commodity to be consumed should possess homogeneous characteristics in form, size, taste, color and quality. Suppose, big and small units, sweet and sour mangoes are selected for consumption, the marginal utility increases instead of diminishing.
3. Constant income: There should be no change in the income of the consumers. Any change in the income affects the consumption behavior of the consumers. When the consumer’s income increases, he may think of revising his consumption pattern unexpectedly. He may change his opinion concerning the consumption of diverse commodities.
4. Standard Units: The unit taken for consumption purposes must be of standard one. They should be neither too large nor too small. Suppose people take coffee by using cups. If they take coffee in small spoons, the utility of marginal units will increase. So the units of a commodity must be given to the consumers in standard sizes.
5. Normal persons: This law is based on the assumption that the consumer behaves in a rational way. It is not applicable in the case of eccentric or abnormal persons like misers who behave in an irrational way.
6. Constancy in price: This law assumes that there are no changes in the price of a commodity and its substitutes. The law does not operate when there is a change in price.
7. Changes in other people’s stock: Another assumption of this law is that there should be no change in the stock of others. A change in the stock of others affects the utility of the consumer. For example the value and utility of land of an individual increases when large scale and medium scale industries were established in a town.
8. Divisible goods: This law is applicable to divisible goods only. Durable and indivisible goods like cars, televisions, video cassette recorders, scooters etc, do not come under the purview of this law. Because, their utility is spread over a period of time. Normally no one buys another new car or television immediately after his first use.
9. Other possessions: This law assumes that there should be no change in the possession of the complementaries by an individual. It ignores the Law of complementarity. For example, a horse without a carriage or a car without petrol is of no use. But if we can acquire a horse or a car, their utility increases.
10. Fashions: This law also assumes that people’s fashions the same. Changes in fashions influence the marginal utility of the consumer. If we have a fashionable dress, its utility increases. On the other hand, if our shirt is out of fashion, its utility decreases.
11. Ordinary goods: This law applies only in the case of ordinary goods. It is not applicable to extra ordinary goods like diamonds, pearls etc.
12. Tastes and preferences: This law assumes that no change occurs in the tastes and preferences of the consumer during the consumption process. So this law does not apply when people’s tastes and preferences change.
13. Marginal utility of Money: This law assumes that marginal utility of money remains constant. If the marginal utility of money changes, the law does not operate. Thus Law of Diminishing Marginal Utility is based on several assumptions and limitations. It is applicable only when the above conditions prevail.
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