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Answer with Reason, Whether You Agree Or Disagree with the Following Statement.The Law of Diminishing Marginal Utility Depends Upon Assumptions. - Economics

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Question

Answer with reason, whether you agree or disagree with the following statement.

The law of diminishing marginal utility depends upon assumptions.

Solution

We agree with the statement that the law of diminishing marginal utility is based on certain assumptions. The following are the basic assumptions:

  1. Standard Units and Reasonable Size of Units- A consumer consumes only standard units of the commodity. For example, a whole of an apple and not half of it. Similarly, glass of water and spoon of water.
  2. Successive Consumption- Consumption of the successive units of the commodity takes place continuously (i.e. without any time lag). This is because if the consumption takes place with a time lag say of an hour or a week (i.e. consumption of one unit of the commodity takes place today and the consumption of the second unit takes place after one week) then, in the next week the consumer will start a fresh valuation of the utility without taking into consideration the utility derived from the consumption of the previous unit of the commodity in the previous week.
  3. Homogeneous Units- The law also assumes that the quality of the commodity remains the same throughout the process of consumption. In other words, all the units of a commodity should be homogeneous and identical in terms of shape, size, colour, quality, etc. That is, if a consumer is consuming water, then a glass of normal water should not be followed by a glass of cold water or a glass of sweet water.
  4. Rational Consumer- The law is applicable only if the consumer is a rational human being. That is, he should make rational consumption decisions.
  5. No Change in Consumer's Tastes and Preferences- There is no change in the tastes and preferences of consumers.   
  6. Utility can be measured- The law only holds if the consumer is able to express his utility in terms of utils. That is, utility can be measured cardinally (or numerically).
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 2012-2013 (March) (with solutions)
Question 5.1 | 8.00 marks

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Solution Answer with Reason, Whether You Agree Or Disagree with the Following Statement.The Law of Diminishing Marginal Utility Depends Upon Assumptions. Concept: Diminishing Marginal Utility.
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