Q.State the Law of Diminishing Marginal Utility. Explain its assumptions.

The law states that marginal utility falls as more units of a commodity are consumed, other things remaining unchanged.

The Law of Diminishing Marginal Utility states that as a consumer consumes successive units of a commodity, the marginal utility derived from each additional unit goes on diminishing, other things — such as income, prices of the good and related goods, and the consumer's tastes — remaining unchanged. It was first stated by the German economist H. H. Gossen and is therefore also known as Gossen's First Law.

Assumptions:

1. Rationality — the consumer aims to maximise total satisfaction and consumes sensibly.
2. Cardinal measurability — utility can be expressed in numerical units (utils).
3. Homogeneous units — every unit of the commodity consumed is identical in size, quality and other characteristics.
4. Continuity of consumption — there is no significant time gap between consuming successive units; a meal eaten over an evening behaves differently from the same food eaten across several days.
5. Unchanged income, prices and tastes — the consumer's income, the price of the commodity and of related goods, and the consumer's preferences stay constant throughout the period being analysed.
6. Constant marginal utility of money — the utility of the last rupee spent does not itself change as the consumer spends.

When all these conditions hold, the law is found to operate almost universally — it is really only a generalisation of ordinary experience: the more of anything a person already has, the less eager they are for one more unit of it.

A frequent error is stating the law without any of its assumptions, or wrongly assuming it means TOTAL utility falls — it is the MARGINAL (extra) utility that falls, while total utility can keep rising, just at a slower rate, until the point of satiety.