Limitations of the Law of Diminishing Marginal Utility

The law of diminishing marginal utility is subject to the following limitations:

• The law assumes measurability of utility and money is the measuring rod to measure utility. But utility is a subjective concept and cannot be measured objectively. We may feel that the additional utility is declining as we consume or acquire more of a commodity but it is not possible to quantity the feeling in objective terms.

• The law is not applicable to abnormal person like miser, drunkards, poets, philosophers, thinkers etc. The more money a miser acquires, more there is desire to acquire. As a drunkard drinks, more there is desire to drink. “A thing of beauty is joy for eve?’ is the expression of a poet. To a normal human being joys of a beautiful thing gradually decline as he watches it again and again.

• It is said that the law is not applicable in case of hobbies like collection of rare stamps and old coins. The more one collects it, more there is desire to collect it. But a close examination would reveal that the law is also applicable here. A stamp collector is interested in collecting stamps of different varieties not the same variety. If same variety stamp is collected, then the law would certainly operate.

• The utility of a good does not depend on its own supply only. It also depends on the supply of substitutes and complements. If coffee is available at lower prices, the utility of tea would decrease. If rises, the utility of butter would fall.

• The law assumes other things to remain constant. That means if taste, fashion, income and habits of the consumer remain the same, the law will hold good. But if there is change in any one of the above factors, the law would fail to operate.

• The law is partially applicable to money, as the stock of money increases, its utility decreases slowly. This is because money has general purchasing power. But unlike other commodities, the marginal utility of money can never he zero or negative. The rupee can be utilized to purchase a chocolate or a post card which has utility. Therefore the curve of marginal utility of money will slope downwards but would never touch the X-axis.

• The law will not operate in the initial stage if the commodity is not of suitable size, For example, if we offer spoons of water to a thirsty man, then his marginal utility will increase initially but eventually it must decline.