Page 23 - VIRANSH COACHING CLASSES

However, these, exceptions are only resources, it is necessary to ‘diversify’ the
apparent. Since they violate some or the consumption.
other assumptions of the law and hence, 2) Useful to the government : The law is
they are not real exceptions. useful to the government in framing various

Criticisms of the Law : policies such as progressive tax policy,
The law of diminishing marginal utility is trade policy, pricing policy etc.
criticised on the following grounds. 3) Basis of paradox of values : The law

1) Unrealistic assumptions : The law of of diminishing marginal utility helps us
diminishing marginal utility is based upon to understand the paradox of values. It
various assumptions like homogeneity, includes goods that have more value-in-use
continuity, constancy, rationality etc. but and zero or less value-in-exchange such as
in reality it is difficult to fulfil all these air, water, sunshine etc. as well as goods
conditions at a point of time. that have more value-in-exchange and less
value-in-use such as gold, diamonds etc.
2) Cardinal measurement : The law assumes 4) Basis of law of demand : The law of demand
that utility can be expressed cardinally so is based on the law of diminishing marginal
it can be added, compared and presented utility. According to the law of demand, the
through a schedule. In reality cardinal quantity demanded of a good rises with a
measurement of utility is not possible fall in price and falls with an increase in
because utility is a psychological concept.
price. When a consumer purchases more
3) Indivisible goods : The law is not and more units of a good, its marginal
applicable to indivisible and bulky goods utility steadily declines. Hence, he would
like refrigerator, car, TV sets etc. which are buy additional units of a commodity only
normally purchased in single unit at a time. at a lower price.

4) Constant marginal utility of money : The
law assumes that MU of each unit of money Try this :
remains constant. However, critics argue Write an informative note on paradox of
that MU of money differs from person to values along with examples.
person. It is influenced by changes in prices, Relationship between Marginal Utility and
stock of money etc.
Price :
5) A single want : The law is restricted to Let us discuss the relationship between
the satisfaction of a single want at a point marginal utility and price in order to understand
of time. However, in reality, a man has to how the law of diminishing marginal utility
satisfy many wants at a point of time. forms the basis of law of demand. It is a perfect
Significance of the Law : example of practical application of the law of
In spite of the criticisms, the law of Diminishing Marginal Utility (DMU).
diminishing marginal utility is a very popular To understand the relation, it is essential
and an important law in Economics because of to convert marginal utility in terms of money so
its universal application. that it can be compared with market price.

1) Usefulness to the consumers : This law Let us assume : One unit of marginal utility =
creates awareness among the consumers. ` 10.
To obtain maximum utility from the limited Market price per unit of x = ` 50.
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