Assumptions of Law of Diminishing Marginal Utility

Assumptions of Law of Diminishing Marginal Utility

The law of diminishing marginal utility is true under certain assumptions. These assumptions are as under:

i) Rationality: In the cardinal utility analysis, it is assumed that the consumer is rational. He aims at maximization of utility subject to availability of his income.

ii) Constant marginal utility of money: It is assumed in the theory that the marginal utility of money based for purchasing goods remains constant. If the marginal utility of money changes with increase or decrease in income, then it cannot yield correct measurement of the marginal utility of the good.

iii) Diminishing marginal utility: Another important assumption of utility analysis is that the utility gained from the successive units of a commodity diminishes in a given time period.

iv) Utility is additive: It is assumed that the utilities of different commodities are independent. The total utility of each commodity is additive.

v)  Consumption to be continuous: It is assumed in this law that the consumption of a commodity should be continuous. If there is interval between the consumption of the same units of the commodity, the law may not hold good. For instance, if you take one glass of water in the morning and the second at noon, the marginal utility of the second glass of water may increase.

vi)  Suitable quantity: It is also assumed that the commodity consumed is taken in suitable and reasonable units. If the units are too small, then the marginal utility instead of falling may increase up to a few units.

vii) Character of consumer does not change: The law holds true if there is no change in the character of the consumer. For example, if a consumer develops a taste for wine, the additional units of wine may increase the marginal utility to a drunkard.

viii) No change of fashion, customs and tastes: If there is a sudden change in fashion or customs or taste of a consumer, then the law will not operate.

ix) No change in the price of the commodity:There should not be any change in the price of that commodity as more units are consumed.