Scribd
Upload
536 views3 pages

Law of Diminishing Marginal Utility

The document discusses the law of diminishing marginal utility. It states that as consumption increases, the additional utility from each additional unit consumed decreases. Total utility initially rises with consumption but eventually falls, resulting in an inverse U-shaped total utility curve. The marginal utility curve slopes downward, showing that marginal utility always decreases with increasing consumption. Consumer equilibrium is reached when price equals marginal utility - the point at which additional consumption would yield less utility than the price paid.

Uploaded by

Rakibul Haque
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
536 views3 pages

Law of Diminishing Marginal Utility

The document discusses the law of diminishing marginal utility. It states that as consumption increases, the additional utility from each additional unit consumed decreases. Total utility initially rises with consumption but eventually falls, resulting in an inverse U-shaped total utility curve. The marginal utility curve slopes downward, showing that marginal utility always decreases with increasing consumption. Consumer equilibrium is reached when price equals marginal utility - the point at which additional consumption would yield less utility than the price paid.

Uploaded by

Rakibul Haque
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 3

LAW OF DIMINISHING MARGINAL UTILITY

• Law of diminishing marginal utility states


that marginal utility decreases with
successive increase in consumption.
• Total utility, in the beginning, increases
with consumption and once it falls but
marginal utility always falls. Total utility
curve is therefore inverse ‘U’-shaped and
marginal utility curve slopes downward.
Law of Diminishing Marginal Utility
.
TU C
B
U
2
A
U
1
TU

O quantity
q q q
MU 1 2 3

M
1  A
M
2  B

C
O  q q 
q
quantity
1 2 3
Figure- 3.2 MU
Consumer’s Equilibrium
• Consumer attains equilibrium when price (P) becomes
equal to marginal utility (MU). If the amount of
marginal utility gained from the consumption of a
good or service is higher than price (i.e., MU > P) then
the consumer would be induced to increase
consumption, which will lower marginal utility due to
the functioning of the law of diminishing marginal
utility. Once marginal utility would become equal to
price (i.e., MU = P) and the consumer will no longer
increase consumption because further increase in
consumption will push marginal utility below price.
This is why MU = P is termed as the equilibrium
condition under the law of diminishing marginal
utility.

You might also like