Question

Diminishing marginal utility violates the assumption that more is better. a. True b. False 3.

Answer 1

a True

Following are the assumptions of the law of diminishing marginal utility.

1. The utility is measurable and a person can express the utility derived from a commodity in qualitative terms such as 2 units, 4 units and 7 units etc.
2. A rational consumer aims at the maximization of his utility.
3. It is necessary that a standard unit of measurement is constant
4. A commodity is being taken continuously. Any gap between the consumption of a commodity should be suitable.
5. There should be proper units of a good consumed by the consumer.
6. It is assumed that various units of commodity homogeneous in characteristics.
7. The taste of the consumer remains same during the consumption o the successive units of commodity.
8. Income of the consumer remains constant during the operation of the law of diminishing marginal utility.
9. It is assumed that the commodity is divisible.
10. There should be not change in fashion. For example, if there is a fashion of lifted shirts, then the consumer may have no utility in open shirts.
11. It is assumed that the prices of the substitutes do not change. For example, the demand for CNG increases due to rise in the prices of petroleum and these price changes effect the utility of CNG.