Law of Diminishing Marginal Utility - Detailed Explanation
Note: There are two laws of utility that are often discussed together: law of diminishing marginal utility and the law of equi-marginal utility. This article explains the law of diminishing marginal utility.
The law of diminishing marginal utility is an important concept to understand. It basically falls in the category of Microeconomics, but it is of equal and significant importance in our day-to-day decisions. In this article, you will find the definition of the law of diminishing marginal utility, its detailed explanation with the help of a schedule and diagram, assumptions we make in the law of diminishing marginal utility and the exceptions where the law of diminishing marginal utility does not apply.
We will first start with the basic definition of ‘Utility’.
Utility:
Utility is the capacity of a commodity through which human wants are satisfied.
Law of Diminishing Marginal Utility:
The law of diminishing marginal utility is comprehensively explained by Alfred Marshall. According to his definition of the law of diminishing marginal utility, the following happens:
“During the course of consumption, as more and more units of a commodity are used, every successive unit gives utility with a diminishing rate, provided other things remaining the same; although, the total utility increases.”
Utils:
'Utils' is considered as the measurable 'unit' of utility.
Note: There are two laws of utility that are often discussed together: law of diminishing marginal utility and the law of equi-marginal utility. This article explains the law of diminishing marginal utility.
The law of diminishing marginal utility is an important concept to understand. It basically falls in the category of Microeconomics, but it is of equal and significant importance in our day-to-day decisions. In this article, you will find the definition of the law of diminishing marginal utility, its detailed explanation with the help of a schedule and diagram, assumptions we make in the law of diminishing marginal utility and the exceptions where the law of diminishing marginal utility does not apply.
We will first start with the basic definition of ‘Utility’.
Utility:
Utility is the capacity of a commodity through which human wants are satisfied.
Law of Diminishing Marginal Utility:
The law of diminishing marginal utility is comprehensively explained by Alfred Marshall. According to his definition of the law of diminishing marginal utility, the following happens:
“During the course of consumption, as more and more units of a commodity are used, every successive unit gives utility with a diminishing rate, provided other things remaining the same; although, the total utility increases.”
Utils:
'Utils' is considered as the measurable 'unit' of utility.
Explanation for the Law of Diminishing Marginal Utility:
We can briefly explain Marshall’s theory with the help of an example. Assume that a consumer consumes 6 apples one after another. The first apple gives him 20 utils (units for measuring utility). When he consumes the second and third apple, the marginal utility of each additional apple will be lesser. This is because with an increase in the consumption of apples, his desire to consume more apples falls.
Therefore, this example proves the point that every successive unit of a commodity used gives the utility with the diminishing rate. for this let us put certain assumptions:
Assumptions in the Law of Diminishing Marginal Utility:
For the law of diminishing marginal utility to be true, we need to make certain assumptions. Each assumption is quite logical and understandable. If any of the assumptions are not true in the case, the law of diminishing marginal utility will not be true.
Following are the assumptions in the law of diminishing marginal utility:
- The quality of successive units of goods should remain the same. If the quality of the goods increase or decrease, the law of diminishing marginal utility may not be proven true.
- Consumption of goods should be continuous. If there comes a substantial break in the consumption of goods, the actual concept of diminishing marginal utility will be altered.
- Consumer’s mental outlook should not change.
- Unit of good should not be very few or small. In such a case, the utility may not be measured accurately.
We can explain this more clearly with the help of a schedule and diagram.
We can briefly explain Marshall’s theory with the help of an example. Assume that a consumer consumes 6 apples one after another. The first apple gives him 20 utils (units for measuring utility). When he consumes the second and third apple, the marginal utility of each additional apple will be lesser. This is because with an increase in the consumption of apples, his desire to consume more apples falls.
Therefore, this example proves the point that every successive unit of a commodity used gives the utility with the diminishing rate. for this let us put certain assumptions:
Assumptions in the Law of Diminishing Marginal Utility:
For the law of diminishing marginal utility to be true, we need to make certain assumptions. Each assumption is quite logical and understandable. If any of the assumptions are not true in the case, the law of diminishing marginal utility will not be true.
Following are the assumptions in the law of diminishing marginal utility:
- The quality of successive units of goods should remain the same. If the quality of the goods increase or decrease, the law of diminishing marginal utility may not be proven true.
- Consumption of goods should be continuous. If there comes a substantial break in the consumption of goods, the actual concept of diminishing marginal utility will be altered.
- Consumer’s mental outlook should not change.
- Unit of good should not be very few or small. In such a case, the utility may not be measured accurately.
We can explain this more clearly with the help of a schedule and diagram.
Schedule for Law of Diminishing Marginal Utility:
Unit of Consumption Marginal Utility Total Utility 1 20 20 2 15 35 3 10 45 4 05 50 5 00 50 6 -05 45
The schedule explains that with each additional unit consumed the marginal utility increases with a diminishing rate. After the saturation point though, the utility starts to fall.
In the above table, the total utility obtained from the first apple is 20 utils, which keep on increasing until we reach our saturation point at 5th apple. On the other hand, marginal utility keeps on diminishing with every additional apple consumed. When we consumed the 6th apple, we have gone over the limit. Hence, the marginal utility is negative and the total utility falls.
With the help of the schedule, we have made the following diagram:
Saturation Point: The point where the desire to consume the same product anymore becomes zero.
Dis utility: If you still consume the product after the saturation point, the total utility starts to fall. This is known as disutility.
When the first apple is consumed, the marginal utility is 20. When the second apple is consumed, the marginal utility increases by 15 utils, which is less than the marginal utility of the 1st apple – because of the diminishing rate. Therefore, we have shown that the utility of apples consumed diminishes with every increase of apple consumed.
Similarly, when we consumed the 5th apple, we are at our saturation point. If we consume another apple, i.e. 6th apple, we can see that the marginal utility curve has fallen to below X-axis, which is also known as ‘disutility’.
The unit and its quality must remain same.
Assumptions in the Law of Diminishing Marginal Utility:
For the law of diminishing marginal utility to be true, we need to make certain assumptions. Each assumption is quite logical and understandable. If any of the assumptions are not true in the case, the law of diminishing marginal utility will not be true.
Following are the assumptions in the law of diminishing marginal utility:
- The quality of successive units of goods should remain the same. If the quality of the goods increase or decrease, the law of diminishing marginal utility may not be proven true.
- Consumption of goods should be continuous. If there comes a substantial break in the consumption of goods, the actual concept of diminishing marginal utility will be altered.
- Consumer’s mental outlook should not change.
- Unit of good should not be very few or small. In such a case, the utility may not be measured accurately.
| Unit of Consumption | Marginal Utility | Total Utility |
|---|---|---|
| 1 | 20 | 20 |
| 2 | 15 | 35 |
| 3 | 10 | 45 |
| 4 | 05 | 50 |
| 5 | 00 | 50 |
| 6 | -05 | 45 |
The schedule explains that with each additional unit consumed the marginal utility increases with a diminishing rate. After the saturation point though, the utility starts to fall.
In the above table, the total utility obtained from the first apple is 20 utils, which keep on increasing until we reach our saturation point at 5th apple. On the other hand, marginal utility keeps on diminishing with every additional apple consumed. When we consumed the 6th apple, we have gone over the limit. Hence, the marginal utility is negative and the total utility falls.
With the help of the schedule, we have made the following diagram:
Saturation Point: The point where the desire to consume the same product anymore becomes zero.
Dis utility: If you still consume the product after the saturation point, the total utility starts to fall. This is known as disutility.
When the first apple is consumed, the marginal utility is 20. When the second apple is consumed, the marginal utility increases by 15 utils, which is less than the marginal utility of the 1st apple – because of the diminishing rate. Therefore, we have shown that the utility of apples consumed diminishes with every increase of apple consumed.
Similarly, when we consumed the 5th apple, we are at our saturation point. If we consume another apple, i.e. 6th apple, we can see that the marginal utility curve has fallen to below X-axis, which is also known as ‘disutility’.
The unit and its quality must remain same.
Assumptions in the Law of Diminishing Marginal Utility:
For the law of diminishing marginal utility to be true, we need to make certain assumptions. Each assumption is quite logical and understandable. If any of the assumptions are not true in the case, the law of diminishing marginal utility will not be true.
Following are the assumptions in the law of diminishing marginal utility:
- The quality of successive units of goods should remain the same. If the quality of the goods increase or decrease, the law of diminishing marginal utility may not be proven true.
- Consumption of goods should be continuous. If there comes a substantial break in the consumption of goods, the actual concept of diminishing marginal utility will be altered.
- Consumer’s mental outlook should not change.
- Unit of good should not be very few or small. In such a case, the utility may not be measured accurately.
Exceptions for the Law of Diminishing Marginal Utility:
The law of diminishing marginal utility states that with the consumption of every successive unit of commodity yields marginal utility with a diminishing rate. However, there are certain things on which the law of diminishing marginal utility does not apply.
Following are the exceptions for this law:
- Desire for money.
- Desire for knowledge.
- Use of liquor or wine.
- Collection of rare objects.
Conclusion:
This concludes the explanation for the law of diminishing marginal utility. Feel free to ask any question in the comment section below.
The law of diminishing marginal utility states that with the consumption of every successive unit of commodity yields marginal utility with a diminishing rate. However, there are certain things on which the law of diminishing marginal utility does not apply.
Following are the exceptions for this law:
- Desire for money.
- Desire for knowledge.
- Use of liquor or wine.
- Collection of rare objects.
Conclusion:
This concludes the explanation for the law of diminishing marginal utility. Feel free to ask any question in the comment section below.
Law of Equi-Marginal Utility
It is the desire of every consumer that he wants to get maximum satisfaction from his limited resources. He can solve this problem if he spends his income in such a way that the last rupee spent on each item gives him the same amount of satisfaction. It is called the law of equi marginal utility.R.G.Lipsey Says, ” The household maximizing is utility will allocate his expenditures between commodities in such a way that the utility of the last penny spent on each is equal.”Every consumer will substitute the more useful for the less useful thing. This law is also known as the law of substitution. It is called the law of Equi-Marginal Utility because it is only law by which the marginal utilities have been equalized through the process of substitution. This law can be explained with the help of following schedule, assuming that our consumer has only Rs. 5/- to spend. Further it is assumed that there are two commodities Apple and Orange.
According to this schedule if one consumer spends his Rs. 5/- on one thing then he will get only 30 or 20 units of satisfaction. To get maximum satisfaction a consumer will spend Rs. 3/- on Apple and Rs. 2/- on Orange. Because in this way the total amount of utility will be maximum.
When a consumer will spend Rs. 3/- on Apple he will get = 10 + 8 + 6 = 24
By spending two rupees on Oranges he will get = 8 + 6 = 14
Total amount of satisfaction will be 24 + 14 = 38If he will adopt any other method, he would not get such amount of utility.So we find that when the marginal utilities ( 6 = 6 ) are equal the total utility is maximum. No combination will give him more satisfaction except this one.
EXPLANATION :- In this diagram MM’ is the marginal utility curve of Apple. If consumer spends Rs. 3/- on Apple. The 3rd rupees utility is FG, KK’ the marginal utility curve of orange. The last rupee utility is HJ. Both the marginal utilities FG = HJ.
LIMITATIONS OF THE LAW OF EQUI MARGINAL UTILITY
1. Unmeasurable concept :-
The concept of utility is unmeasurable so it is very difficult to behave according to the law.
2. Carelessness :-
Sometimes due to ignorance people do not obtain the maximum advantage by equating the marginal utilities.
3. Indivisible units :-
If the unit of expenditure is indivisible then this law will not operate.
4. Customs :-
People are slave of customs and traditions, so they use the goods like gold even there is less utility.
5. Freedom of choice :-
If there is no perfect freedom to choose between various commodities, then the law will not operate.
It is the desire of every consumer that he wants to get maximum satisfaction from his limited resources. He can solve this problem if he spends his income in such a way that the last rupee spent on each item gives him the same amount of satisfaction. It is called the law of equi marginal utility.R.G.Lipsey Says, ” The household maximizing is utility will allocate his expenditures between commodities in such a way that the utility of the last penny spent on each is equal.”Every consumer will substitute the more useful for the less useful thing. This law is also known as the law of substitution. It is called the law of Equi-Marginal Utility because it is only law by which the marginal utilities have been equalized through the process of substitution. This law can be explained with the help of following schedule, assuming that our consumer has only Rs. 5/- to spend. Further it is assumed that there are two commodities Apple and Orange.
According to this schedule if one consumer spends his Rs. 5/- on one thing then he will get only 30 or 20 units of satisfaction. To get maximum satisfaction a consumer will spend Rs. 3/- on Apple and Rs. 2/- on Orange. Because in this way the total amount of utility will be maximum.
When a consumer will spend Rs. 3/- on Apple he will get = 10 + 8 + 6 = 24
By spending two rupees on Oranges he will get = 8 + 6 = 14
Total amount of satisfaction will be 24 + 14 = 38If he will adopt any other method, he would not get such amount of utility.So we find that when the marginal utilities ( 6 = 6 ) are equal the total utility is maximum. No combination will give him more satisfaction except this one.
EXPLANATION :- In this diagram MM’ is the marginal utility curve of Apple. If consumer spends Rs. 3/- on Apple. The 3rd rupees utility is FG, KK’ the marginal utility curve of orange. The last rupee utility is HJ. Both the marginal utilities FG = HJ.
LIMITATIONS OF THE LAW OF EQUI MARGINAL UTILITY
1. Unmeasurable concept :-
The concept of utility is unmeasurable so it is very difficult to behave according to the law.
2. Carelessness :-
Sometimes due to ignorance people do not obtain the maximum advantage by equating the marginal utilities.
3. Indivisible units :-
If the unit of expenditure is indivisible then this law will not operate.
4. Customs :-
People are slave of customs and traditions, so they use the goods like gold even there is less utility.
5. Freedom of choice :-
If there is no perfect freedom to choose between various commodities, then the law will not operate.
The Law of Diminishing Marginal Utility or Gossen's First Law
Introduction
Gossen, a German economist, is the first to explain the law of diminishing marginal utility based on general observations of human behavior. Because of this reason, the law is further termed as ‘Gossen’s first law’.
What does the law state?
The law of diminishing marginal utility states that the utility derived from each successive unit of a commodity diminishes. To put it simply, even the most beautiful place of the world or the sweetest music can make you feel bored after certain stage. The law further states that when an individual consumes more of a commodity the total utility increases at a decreasing rate. However, after certain stage, the total utility also starts decreasing and the marginal utility becomes negative (See Table 1). This means that the individual does not need the commodity further.
Law of Satiable Wants
As you understand, an individual’s want for a particular commodity gets satiated when he or she consumes more and more of it. After certain stage, the individual is not willing to consume the commodity anymore. Because of this reason, the law of diminishing marginal utility is also known as the law of satiable wants.
Gossen, a German economist, is the first to explain the law of diminishing marginal utility based on general observations of human behavior. Because of this reason, the law is further termed as ‘Gossen’s first law’.
What does the law state?
The law of diminishing marginal utility states that the utility derived from each successive unit of a commodity diminishes. To put it simply, even the most beautiful place of the world or the sweetest music can make you feel bored after certain stage. The law further states that when an individual consumes more of a commodity the total utility increases at a decreasing rate. However, after certain stage, the total utility also starts decreasing and the marginal utility becomes negative (See Table 1). This means that the individual does not need the commodity further.
Law of Satiable Wants
As you understand, an individual’s want for a particular commodity gets satiated when he or she consumes more and more of it. After certain stage, the individual is not willing to consume the commodity anymore. Because of this reason, the law of diminishing marginal utility is also known as the law of satiable wants.
Assumptions of the Law of Diminishing Marginal Utility
The law of diminishing marginal utility is based on the following explicit assumptions:
Homogeneity
Each unit of the commodity under consideration is identical in all aspects such as quality, taste, color, size and so on.
Reasonability
Each unit of commodity under consideration must be same and standard. For example, 100 ml of coffee, 200 grams of apple and so on.
Constancy
The law of diminishing marginal utility assumes that consumer’s consumption pattern, tastes, preferences, income, and price of the commodity and its substitutes are constant during the process of consumption.
Continuity
The law further assumes that consumption is a continuous process and there is no room for any time gap.
Rationality
Finally, for the law to hold well, the consumer must be a rational economic man. In addition, the law assumes that the consumer’s mental condition remains normal during the process of consumption.
The law of diminishing marginal utility is based on the following explicit assumptions:
Homogeneity
Each unit of the commodity under consideration is identical in all aspects such as quality, taste, color, size and so on.
Reasonability
Each unit of commodity under consideration must be same and standard. For example, 100 ml of coffee, 200 grams of apple and so on.
Constancy
The law of diminishing marginal utility assumes that consumer’s consumption pattern, tastes, preferences, income, and price of the commodity and its substitutes are constant during the process of consumption.
Continuity
The law further assumes that consumption is a continuous process and there is no room for any time gap.
Rationality
Finally, for the law to hold well, the consumer must be a rational economic man. In addition, the law assumes that the consumer’s mental condition remains normal during the process of consumption.
Explanation of the Law of Diminishing Marginal Utility
Suppose that you are hungry and plan to have some oranges. Since you are hungry, the first orange provides you with great amount of utility. The utility derived from the second orange is certainly less than that of the first orange. Similarly, the utility derived from the third orange is less than that of the second orange; the fourth orange yields you less utility than the third orange and so on. After certain stage of consumption, the utility derived becomes zero and beyond this stage, the utility derived becomes negative. This is because of the reason that you are getting satiated as you consume more and more oranges.
When the utility becomes zero, it means that the consumer is not in need of the commodity any further. For better understanding, let us look at the following table. The figures mentioned in the table are hypothetical and the table represents the utility derived by a person from the consumption of oranges.
Suppose that you are hungry and plan to have some oranges. Since you are hungry, the first orange provides you with great amount of utility. The utility derived from the second orange is certainly less than that of the first orange. Similarly, the utility derived from the third orange is less than that of the second orange; the fourth orange yields you less utility than the third orange and so on. After certain stage of consumption, the utility derived becomes zero and beyond this stage, the utility derived becomes negative. This is because of the reason that you are getting satiated as you consume more and more oranges.
When the utility becomes zero, it means that the consumer is not in need of the commodity any further. For better understanding, let us look at the following table. The figures mentioned in the table are hypothetical and the table represents the utility derived by a person from the consumption of oranges.
Table 1
Number of Oranges Total Utility Marginal Utility 1 6 6 2 11 5 3 15 4 4 18 3 5 20 2 6 21 1 7 21 0 8 20 -1
Total utility
Total utility, as the term indicates, is the utility derived from all units of commodity. Suppose that a person consumes 10 oranges. In this case, the total utility is obtained by adding the utility derived from each unit of orange. In our example (Table 1), the total utility derived from the first six oranges is 21 (21 = 6 + 5 + 4 + 3 + 2 + 1).
Marginal utility
Marginal utility is the utility from a successive unit of commodity. To put it simple, marginal utility represents the utility derived from each unit of commodity under consideration.
Symbolically,
MU =ΔTU/ΔC where,
TU = total utility
ΔTU = change in total utility (TUn – TUn-1)
C = consumption and ΔC = 1 unit or
In other words, marginal utility of nth unit of commodity A is the difference between the total utility of nth unit and the total utility of (n-1)th unit of the commodity.
Symbolically,
MUn = TUn – TUn-1
where,
MUn = Marginal utility of nth unit
TUn = Total utility of nth unit
TUn-1 = Total utility of (n-1)th unit
In our example (Table 1), the marginal utility of the 4th orange is MU4 = TU4 – TU3= 18 – 15 = 3.
The figure 1 details the path of total utility and marginal utility curves. The total utility curve rises initially and after certain stage, the curve starts declining. At this stage, the marginal utility curve enters into the negative zone.
| Number of Oranges | Total Utility | Marginal Utility |
|---|---|---|
| 1 | 6 | 6 |
| 2 | 11 | 5 |
| 3 | 15 | 4 |
| 4 | 18 | 3 |
| 5 | 20 | 2 |
| 6 | 21 | 1 |
| 7 | 21 | 0 |
| 8 | 20 | -1 |
Total utility
Total utility, as the term indicates, is the utility derived from all units of commodity. Suppose that a person consumes 10 oranges. In this case, the total utility is obtained by adding the utility derived from each unit of orange. In our example (Table 1), the total utility derived from the first six oranges is 21 (21 = 6 + 5 + 4 + 3 + 2 + 1).
Marginal utility
Marginal utility is the utility from a successive unit of commodity. To put it simple, marginal utility represents the utility derived from each unit of commodity under consideration.
Symbolically,
MU =ΔTU/ΔC where,
TU = total utility
ΔTU = change in total utility (TUn – TUn-1)
C = consumption and ΔC = 1 unit or
In other words, marginal utility of nth unit of commodity A is the difference between the total utility of nth unit and the total utility of (n-1)th unit of the commodity.
Symbolically,
MUn = TUn – TUn-1
where,
MUn = Marginal utility of nth unit
TUn = Total utility of nth unit
TUn-1 = Total utility of (n-1)th unit
In our example (Table 1), the marginal utility of the 4th orange is MU4 = TU4 – TU3= 18 – 15 = 3.
The figure 1 details the path of total utility and marginal utility curves. The total utility curve rises initially and after certain stage, the curve starts declining. At this stage, the marginal utility curve enters into the negative zone.
Table 2: Relationship between Marginal Utility and Total Utility
Marginal Utility Total Utility 1. Declines 1. Increases but at a diminishing rate 2. Reaches zero; and 2. Reaches maximum; and 3. Becomes Negative 3. Declines from the maximum
The law claims that the marginal utility diminishes as quantity consumed increases. In some cases, the marginal utility may keep increasing in the beginning. However, a stage certainly comes at which the marginal utility starts decreasing. The law is relevant only at this decreasing part.
| Marginal Utility | Total Utility |
|---|---|
| 1. Declines | 1. Increases but at a diminishing rate |
| 2. Reaches zero; and | 2. Reaches maximum; and |
| 3. Becomes Negative | 3. Declines from the maximum |
The law claims that the marginal utility diminishes as quantity consumed increases. In some cases, the marginal utility may keep increasing in the beginning. However, a stage certainly comes at which the marginal utility starts decreasing. The law is relevant only at this decreasing part.
Why does the marginal utility diminish?
The following two important reasons are advanced for the operation of the law of diminishing marginal utility:
Satiability of particular wants
Firstly, human wants are satiable. Though you are an ardent lover of movies, you cannot watch infinite number of movies. At certain stage, you are bored of movies. Because your want is getting satiated as you watch more and more movies. This is the fundamental reason for the operation of the law of diminishing marginal utility.
Commodities are not perfectly substitutes
Secondly, each commodity is unique in the usage. This means that commodities are not perfectly substitutes. When you are satisfied with one commodity, you switch over to another because of their unique usages. When you try out something new, the utility derived from the first unit is high and the subsequent units give you less and less utility. Therefore, the law of diminishing marginal utility operates. Had all commodities been perfectly substitutes, there would be nothing new to excite you. In this case, law of diminishing marginal utility does not operate.
The following two important reasons are advanced for the operation of the law of diminishing marginal utility:
Satiability of particular wants
Firstly, human wants are satiable. Though you are an ardent lover of movies, you cannot watch infinite number of movies. At certain stage, you are bored of movies. Because your want is getting satiated as you watch more and more movies. This is the fundamental reason for the operation of the law of diminishing marginal utility.
Commodities are not perfectly substitutes
Secondly, each commodity is unique in the usage. This means that commodities are not perfectly substitutes. When you are satisfied with one commodity, you switch over to another because of their unique usages. When you try out something new, the utility derived from the first unit is high and the subsequent units give you less and less utility. Therefore, the law of diminishing marginal utility operates. Had all commodities been perfectly substitutes, there would be nothing new to excite you. In this case, law of diminishing marginal utility does not operate.
Are there Exceptions to the Law of Diminishing Marginal Utility?
The Law of diminishing marginal utility does not operate under some circumstances. The following are the exceptions to the law of diminishing marginal utility:
Abnormality
Abnormality in individuals prevents the law from working well. For instance, misers or drunkards are considered abnormal here. Additional units of toxic substance may yield increasing marginal utility to a drunkard. In this scenario, the law of diminishing marginal utility does not work. Similarly, a miser may get increasing marginal utilities by acquiring more and more money. However, this argument is ruled out because the law assumes rationality in human behavior.
Rare collections
Some people may involve collection rare articles such as antiques, stamps, old paintings, coins and so on. Under these circumstances also, the law of diminishing marginal utility does not hold good. Similarly, some people purchase goods such as jewels and diamonds just to display them in order to uphold their social status. In this case, the law of diminishing marginal utility does not operate properly.
Increasing usage
When many people start using a commodity, the utility derived from it starts increasing. For example, when you alone use a mobile phone, you may not find it much useful. If all your friends start using mobile phone, you will start using yours frequently. In this case, the utility you derive from your mobile phone start increasing, when others start using mobile phone. Therefore, there is no possibility for the law of diminishing marginal utility to operate under this circumstance.
The Law of diminishing marginal utility does not operate under some circumstances. The following are the exceptions to the law of diminishing marginal utility:
Abnormality
Abnormality in individuals prevents the law from working well. For instance, misers or drunkards are considered abnormal here. Additional units of toxic substance may yield increasing marginal utility to a drunkard. In this scenario, the law of diminishing marginal utility does not work. Similarly, a miser may get increasing marginal utilities by acquiring more and more money. However, this argument is ruled out because the law assumes rationality in human behavior.
Rare collections
Some people may involve collection rare articles such as antiques, stamps, old paintings, coins and so on. Under these circumstances also, the law of diminishing marginal utility does not hold good. Similarly, some people purchase goods such as jewels and diamonds just to display them in order to uphold their social status. In this case, the law of diminishing marginal utility does not operate properly.
Increasing usage
When many people start using a commodity, the utility derived from it starts increasing. For example, when you alone use a mobile phone, you may not find it much useful. If all your friends start using mobile phone, you will start using yours frequently. In this case, the utility you derive from your mobile phone start increasing, when others start using mobile phone. Therefore, there is no possibility for the law of diminishing marginal utility to operate under this circumstance.
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