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CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production

The law of diminishing marginal utility states that, other things remaining the same, as a consumer consumes more units of a commodity in succession:

The law of diminishing marginal utility says that the marginal utility of each additional unit consumed declines, other things being equal. Total utility may still increase for a while, but at a decreasing rate. The law is about satisfaction, not price.

  1. ATotal utility falls from the first unit
  2. BMarginal utility of each additional unit declinesCorrect
  3. CMarginal utility increases at a decreasing rate
  4. DPrice of the commodity must fall

Explanation

The law says that the additional satisfaction from each successive unit declines, assuming tastes, income and unit size are constant. Total utility may still rise while MU falls. It does not say anything about price changes.

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