Answer in detail :
1) State and explain the law of Diminishing Marginal Utility and explain its exceptions.
The law of diminishing marginal utility states that: “As a consumer consumes more and more units of a commodity at succession, the Marginal Utility derived from the consumption of each additional unit of the commodity falls.” The law of diminishing marginal utility fails to operate in the following situations.
Following are the exceptions of law of Diminishing Marginal Utility
i. Hobbies – Hobbies such as jewellery collection by women, stamp collection, old coins, antiques etc. violate the law.
ii. Misers – In case of misers, MU increases with the increase in the total amount of money available to him, violating the law.
iii. Drunkards – The consumption of products like liquor and cigarettes violates the law. As people tend to consume more of these products, the thirst utility for additional units is greater. This is the reason for the violation.
iv. Power – The law also fails in case of acquiring power. An individual feels more pleasure and derives a higher level of utility, with a greater degree of power.
v. Listening to music – In the initial phase, listening to good music again and again violates this law. However; after a certain limit, listening to the same music becomes boring. As a result, the marginal utility tends to diminish. Thus, it is only in the initial period when listening to good music violates the law of diminishing marginal utility.
vi. Reading – More and more reading gives an individual more pleasure and a higher level of utility. This happens because, with more and more reading, an individual acquires a greater degree of knowledge and higher education.
vii. Money – The law of diminishing marginal utility fails in case of earning money. Due to the greed of earning money, people tend to earn as much money as they can