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Home » Economics Homework Help » Microeconomics Help » Marginal Utility Rate
Marginal Utility Rate
An important tenet of cardinal utility analysis relates to behavior of marginal utility. This familiar behavior of marginal utility has been stated in the Law of Diminishing Marginal Utility according to which marginal utility of a good diminishes as an individual consumes more units of a good. In other words, as a consumer take more units of a good, the extra utility of satisfaction that he derives from an extra unit of the good goes on falling. It should be carefully noted that it is the marginal utility and not the total utility that declines with the increase in the consumption of a good. The law of diminishing marginal utility means that the total utility increases at a decreasing rate.

Marshall who was the famous exponent of the utility analysis has stated the law of diminishing marginal utility as follows:
“the additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has”.

This law is based upon two important facts. First, while the total wants of a man are virtually unlimited, each single want is satiable. Therefore, as an individual consumers more and more units of a good, intensity of his want for the good goes on falling and a point is reached, marginal utility of a good becomes zero. Zero marginal utility of a good implies that the individual has all that he wants of the good in question. The second fact on which the law of diminishing marginal utility is based is that the different goods are not perfect substitutes for each other in the satisfaction of various particular wants. When an individual consumes more and more units of a good, the intensity of his particular wants for goods diminishes but if the units of that good would be devoted to the satisfaction of other wants and yielded as much satisfaction as they did initially in the satisfaction of the first want, marginal utility of the good would not have diminished.

It is obvious from above that the law of diminishing marginal utility describes a familiar and fundamental tendency of human nature. This law has been arrived at by introspection and by observing how people behave.

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