Page 38 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-3: Consumer Theory–Cardinal Utility Analysis

7. Marginal utility of the every commodity is ......................... Notes
(a) dependent (b) big (c) independent (d) small

Exceptions

According to some economists following are the exceptions to the law of diminishing marginal utility.
It means that the law does not apply under the following situations. But a thorough study reveals that
the exceptions are more clear than real.
1. Curious and Rare Things: It is said that this law does not apply to curious and rare things. The persons
who collect old and rare coins, postage stamps as increasing marginal utility as the stock of these rare
articles goes on increasing. They are always keen to obtain more and more units of such things. But
this exception is not true. Whereas after collecting number of stamps of the same kind the marginal
utility diminishes.
2. Misers: It seems law does not apply to misers who want to acquire more and more of wealth. Their
desire for money seem to be insatiable. But according to Meyers even this exception is not true. The
amount of money a miser spends on food and clothing but he cannot spend on Gold and silver. It
proves that a miser who has large stock of bullions (Gold and silver) , the utility of the gold and
silver gets diminished and that of food and clothing whose stock is limited, increases.
3. Good Book or Poem: It is said that by reading a good book or listening to a melodious song and
a beautiful poem again and again one gets more utility than before. So good books and poems are
considered exceptions to this law. But it is not true. It is possible that up to a certain limit reading
a good book or listening to a song again and again may increase the marginal utility but reading
a good book or listening to a song at a given period of time may bring a sense of bored feeling in
mind, which may lead to diminish the marginal utility.
4. Drunkards: It can be said that when a drunkard takes a liquor and intoxicant then as he takes more
and more pegs of liquor his desire to have more of it goes on increasing. So a drunkard is regarded as
an exception to this law. However, even in case of drunkard, a stage comes when he loses his sense and
starts suffering pointing to negative impact of the successive drinking the law ultimately holds goods.
5. Initial units: When the initial units of a commodity are used in less than appropriate quantity, then the
marginal utility from the additional units goes on increasing. According to Benham to heat up furnace
we use coal piece, the marginal utility of the additional coal increases because the furnace requires
adequate initial supply of coal. But this exception is also not correct. As we make adequate quantity
of initial supply of coal then every additional unit of coal will yield less and less marginal utility.
In concise Prof. Taussig has rightly said that the tendency of law of diminishing marginal utility is
so widely prevalent that it would not be wrong to call it as universal law.

3.8 Derivation of Consumer’s Demand Curve Through
the Law of Diminishing Marginal Utility

The price that the consumer pays is equal to the marginal utility. According to law of diminishing marginal
utility, as a consumer goes on buying more and more units of commodity its marginal utility goes on
diminishing. As such the consumer will buy more and more units of commodity when its rice goes down.
Even marginal utility is expressed in terms of money, in that situation the positive part of the marginal
utility is the demand curve. In the words of Lipsey, “When the consumption of all but one product is
held constant, the marginal utility schedule for the variable product is the product’s demand curve.”
When the marginal utility is shown on OY-axis then the curve obtained will be the marginal utility , in
case price is shown in OY–axis then the curve obtain will be called marginal utility curve as indicated
in the Fig. 3.3(A) and 3.3(B).

LOVELY PROFESSIONAL UNIVERSITY 31