1. LAW OF DIMINISHING
MARGINAL UTILITY
AND
LAW OF EQUI
MARGINAL UTILITY

2. UTILITY
Characteristics:
• Utility is subjective/not measurable
• Utility is variable
• Utility is different from usefulness
• No legal or moral connotations

3. Marginal Utility (MU)
The word Marginal means “Border” or
“Edge”.
It is the addition made to the total
utility by consuming one more unit of a
commodity.

4. Total utility (TU)
Total Utility refers to the total
satisfaction derived by the consumer from
the consumption of a given quantity of a
good.
TU = Sum of all MU

5. The exponents of the utility analysis have
developed two laws which occupy a very
important place in economics theory and
they are :-
# Law of Diminishing Marginal
Utility
# Law of Equi-Marginal Utility
Exponents

6. Law
of
Diminishing
Marginal Utility

7. This law state that as the amount
consumed of a commodity increases, the
utility derived by the consumer from
the additional units, i.e marginal utility
goes on decreasing.
According to Marshall, “The additional
benefit a person derives from a given
increase of his stock of a thing
diminishes with every increase in the
stock that he already has”
STATEMENT

8. EXPLANATION
As more and more quantity of a commodity
is consumed, the intensity if desire
decreases and also the utility derived from
the additional unit.

9. All the units of a commodity must be same
in all respects. The unit of the good must
be standard
There should be no change in taste during
the process of consumption
There must be continuity in consumption
There should be no change in the price of
the substitute goods
ASSUMPTIONS

10. EXCEPTIONS
# Money
# Hobbies and Rare Things
# Liquor and Music
# Things of Display

11. IMPORTANCE
• Basis of Law of Demand
• Basis of Consumption Expenditure
• The basis of Progressive Taxation

12. Law
of
Equi-Marginal
Utility

13. STATEMENT
This law states that the consumer
maximizing his total utility will allocate
his income among various commodities in
such a way that his marginal utility of
the last rupee spent on each commodity
is equal.
The consumer will spend his money income
on different goods in such a way that
marginal utility of each good is
proportional to its price.

14. Limitations
##It is difficult for the consumer to know
the marginal utilities from different
commodities because utility cannot be
measured.
#Consumer are ignorant and therefore
are not in a position to arrive at an
equilibrium.
#It does not apply to indivisible and
inexpensive commodity.

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