Alfred Marshall's Law of Diminishing Marginal Utility

Maharashtra State Textbook Bureau

• The textbook bureau is responsible for publishing textbooks for Std.XII, which includes micro and macro approaches to the study of economics.

Formulae for Total Utility and Marginal Utility

• TU = Σ MU or TU = MU1 + MU2 + MU3 ………..+ MUn
• MUn = TUn – TU(n–1)

Total Utility Curve and Marginal Utility Curve

• The total utility curve slopes upwards, while the marginal utility curve slopes downwards.
• The marginal utility curve shows zero and negative levels of marginal utility.
• The total utility curve shows maximum and constant total utility levels.

Relationship between Total Utility and Marginal Utility

• Marginal utility derived from various units of a commodity and its total utility are interrelated.
• At a particular stage, total utility reaches its maximum and remains constant, while marginal utility becomes zero, which is called the point of satiety.

Law of Diminishing Marginal Utility

• The law assumes an experience of a single want that is completely satiable at a given point in time.
• As the consumption of a commodity increases, the marginal utility of each additional unit decreases.

Exceptions to the Law of Diminishing Marginal Utility

• Hobbies: Every additional increase in the stock gives more pleasure, increasing marginal utility.
• Miser: Every additional rupee gives more satisfaction, increasing marginal utility.
• Addictions: The level of intoxication increases with every additional unit of liquor consumed.

Money Market in India

• The money market in India is located in Mumbai, Delhi, and Kolkata, with Mumbai being the only active centre.
• The structure of the money market in India includes the Reserve Bank of India, commercial banks, and other financial institutions.

Central Bank and its Functions

• The Reserve Bank of India (RBI) is the central bank of India, controlling credit and regulating the banking system.
• The RBI has the sole right to issue currency notes of all denominations, except one rupee note and coins.
• The RBI acts as a banker, agent, and advisor to the Government, transacting the business of both the Central and State Governments.
• The RBI collects and compiles statistical information related to banking and other financial sectors of the economy.

Capital Market in India

• The capital market in India consists of financial intermediaries, including merchant banks, mutual funds, leasing companies, venture capital companies, and others.
• The capital market mobilizes long-term savings, meeting the financial objectives of both the investor and the borrower.
• Insider trading and price manipulation are illegal practices that can affect the smooth functioning of the capital market.

Test your knowledge on Alfred Marshall's Law of Diminishing Marginal Utility with questions related to single wants, negative utility, and the concept of diminishing marginal utility. Explore exceptions to this law with a detailed explanation of Table 2.2.