Podcast
Questions and Answers
Which assumption is violated by the condition where the MU received by a drunkard may increase?
Which assumption is violated by the condition where the MU received by a drunkard may increase?
What is an exception to the law related to power?
What is an exception to the law related to power?
In the diagram provided, what does the locus of all points joined depict?
In the diagram provided, what does the locus of all points joined depict?
What is an apparent exception regarding money and its marginal utility?
What is an apparent exception regarding money and its marginal utility?
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Why does the MU curve slope downwards from left to right in the diagram?
Why does the MU curve slope downwards from left to right in the diagram?
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How does the marginal utility of money change as per the text?
How does the marginal utility of money change as per the text?
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Which assumption do the exceptions related to power, money, and drunkard violate?
Which assumption do the exceptions related to power, money, and drunkard violate?
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Study Notes
Law of Diminishing Marginal Utility
- The law states that the marginal utility of a commodity decreases as its quantity consumed increases, assuming other things remain constant.
- The law assumes an experience of a single want which is completely satiable at a given point of time.
- The law is graphically represented by a downward-sloping curve, with marginal utility decreasing with each additional unit of the commodity.
Exceptions to the Law of Diminishing Marginal Utility
- Hobbies: The law does not apply to hobbies like collecting stamps, coins, paintings, music, and reading, as every additional increase in the stock gives more pleasure, increasing marginal utility.
- Miser: The law does not apply to a miser, as every additional rupee gives more satisfaction, increasing marginal utility.
- Addictions: The law does not apply to addictions like alcohol, where the level of intoxication increases with every additional unit consumed.
- Indivisible goods: The law is not applicable to indivisible and bulky goods like refrigerators, cars, and TV sets, which are normally purchased in single units at a time.
- Constant marginal utility of money: The law assumes that the marginal utility of each unit of money remains constant, but critics argue that it differs from person to person and is influenced by changes in prices and stock of money.
Relationship between Marginal Utility and Price
- To understand the relationship between marginal utility and price, it is essential to convert marginal utility in terms of money so that it can be compared with market price.
- One unit of marginal utility can be assumed to be equal to a certain amount of money (e.g., ₹10).
Significance of the Law
- Despite criticisms, the law of diminishing marginal utility is a popular and important law in Economics due to its universal application.
- It forms the basis of the law of demand and has a significant impact on understanding consumer behavior.
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Description
Test your knowledge on Alfred Marshall's Law of Diminishing Marginal Utility with this quiz. Explore concepts such as additional benefit, single want, disutility, and exceptions to the law.
