Law of Diminishing Marginal Utility
The law of diminishing Marginal utility was initially formulated by a German economist H.H. Gossen. It was later systematically formulated by Alfred Marshall.
The law of diminishing marginal utility states that as more and more units of a commodity are consumed, marginal utility derived from each additional unit keeps on decreasing. The law of diminishing marginal utility can be explained with help of total utility (TU) and marginal utility (MU) curves and schedules.
The assumptions on which the law of diminishing marginal utility is formulated are as follows: consumer acts rationally, there is cardinal measurement of utility, there is homogeneity of units, there is constancy of marginal utility of money, there is continuity in consumption, there is no change in fashion, habits and taste of consumer, there is no change in income and prices, etc. Given these assumptions the law of diminishing marginal utility holds universally.
The exceptions to the law of diminishing marginal utility are: hobbies, misers, music and poetry and money
The few important limitations and criticisms of the Law are:
Utility is a psychological concept and cannot be measured.
Marginal utility of money cannot be constant
Most of the assumptions on which the law is formed are unrealistic, etc.