EXCEPTIONS TO THE LAW OF DIMINISHING MARGINAL UTILITY

  Learning Contents:   

• Exceptions to the Law of Diminishing Marginal Utility

The Law of diminishing marginal utility states that the additional satisfaction (MU) gained from the consumption of every unit keeps on diminishing. But there are some exceptions where this law is not applicable or when marginal utility increases as more and more units of a good are consumed.

1. Hobbies: Some people have hobbies like collecting coins, stamps, pieces of art, novels, etc. Their desire to collect never ends as they derive more and more utility from additional units gained from their hobby item. For instance, a level of satisfaction increases when a new variety of stamps or coins are received. However, the utility diminishes if the same variety of stamps or coins is gained every time.

2. Drunkards: People addicted to liquor have a tendency to gain more and more utility from the consumption of every additional unit of liquor. Their tendency to intake will increase with every peg of liquor. But here it may be debated that the condition of rational behavior may not be fulfilled.

3. Music, Song, and Poetry: People enjoy listening to the same music, song, and poetry again and again. As their desire to listen increase, which further increases their level of satisfaction i.e. joy, relaxation, mood change, etc. Their level of happiness i.e. marginal utility increase from hearing the same poetry again and again. But we have to remember that this goes on till a particular level, after which the interest level may fall and hence disutility may be experienced.

4. Reading: Reading gives deeper knowledge which results in overall satisfaction. People who enjoy reading books tend to be more satisfied with their increased knowledge. Their marginal utility increase with the reading of every additional book. But here we have to keep this fact in mind that reading of the same book, again and again, won’t increase their satisfaction.

5. Money: Money has purchasing power. Everyone desires to have more and more money. The desire to have money never ends. The marginal utility of money always increases as we want more and more of it. One thing to keep in mind is that money doesn’t satisfy our wants directly. A hungry man cannot eat money but can buy food with it. Point of maximum satisfaction (Pont of satiety) is not possible in the case of money. Marginal utility never becomes zero even one becomes a millionaire.

6. Misers: Misers are the individual who always desires to save more and more money. Their tendency to spend is very low. With this behavior, their marginal utility of money goes on increasing with more and more added to the stock of money. It means that the marginal utility will not decrease with the addition of money. When the money is spent on commodities then marginal utility may fall, but as long as the money is not spent then with every addition to the stock of money the marginal utility will increase.

7. Durable and valuable goods: The law is not applicable in the case of durable goods as well as valuable goods such as buildings, vehicles, gems, gold, etc.

8. Not a suitable time period:  There should not be a very long gap between the consumption of different units of the commodity. If there is a time lag between the consumption of different units, then this law may not hold good. For example: If a man has lunch at 10 a.m. and dinner at 8 p.m. and eats nothing in between, the dinner will possibly yield even more satisfaction than the lunch, i.e. his marginal utility will not diminish

From the above examples, we can say that there are situations where the law of diminishing marginal utility doesn’t apply i.e. fails to be applicable, and hence marginal utility increases.