Assumptions of Law of Diminishing Marginal Utility:
The law of DMU operates under certain specific conditions. Economists call them the ‘assumptions’ of this law.
1. Cardinal measurement of utility:
It is assumed that utility can be measured and a consumer can express his satisfaction in quantitative terms such as 1, 2, 3, etc.
2. Monetary measurement of utility:
It is assumed that utility is measurable in monetary terms.
3. Suitable Quantity:
The quantity of a good which is supposed to be a unit, should be suitable. It means it should neither be too much nor too less.
For example, a glass of water is a suitable unit. If a spoon of water is supposed to b a unit, then the utility of every spoon will increase instead of decreasing to a certain extent. On the contrary, if a full jug of water is supposed to be a unit, the thirst will be satisfied before consuming whole of the unit.
4. Continuous consumption:
It is assumed that consumption is a continuous process.a long interval between the consumption of two units proves this wrong.
For example, supposing that a man drinks the first galss of water in the morning and the second in the noo, then
the utility of the second glass will be more than the first one.
5. No change in Quality:
Quality of the commodity consumed is assumed to be uniform.
For example, A second cup of ice-cream with nuts and toppings may give more satisfaction than the first one, if the first ice-cream was without nuts or toppings.
6. Rational consumer:
The consumer is assumed to be rational who measures, calculates and compares the utilities of different commodities and aims at maximising total satisfaction.
7. Independent utilities:
It is assumed that all the commodities consumed by a consumer are independent. It means, MU of one commodity has no relation with MU of another commodity. Further, it is also assumed that one person’s utility is not affected by the utility of any other person.
8. No change in consumer’s Mental Condition:
This law proves to be true if the mental condition of the consumer does not change when using the good.
For example, if a man remembers while eating apple that doctor has suggested apple useful for his health, then he will eat apple with more relish. In this way, utility will increase instead of decreasing.
9. Fixed Income and prices:
It is assumed that income of the consumer and prices of the goods which the consumer wishes to purchase remain constant.