It our common observation that when units of a commodity used continuously the lateral units give less and less satisfaction. In the beginning we have strong desire to use unit’s commodity but with the continuous use the desire for commodity to use diminishes, as the want is satisfied. When the want is satisfied utility reaches to zero and then with the excessive use of units of commodity the utility becomes negative. The law of diminishing marginal utility expresses the relationship between the units of a commodity consumed and the marginal utility of each unit of the commodity.
Suppose thirsty person starts drinking water continuously. The first glass gives him great pleasure, the second glass of wager give his less satisfaction and the satisfaction of the third glass of water is less than the previous one and so on. The additional satisfaction decreases with ever successive glass of water till it goes down to zero and by excessive use of satisfaction may be negatives.
The law bold only when units consumed continuously. If there is a gap or interval between the consumption of units. Then utility may increase instead of diminishing e.g. if we take lunch at 2 P.M and dinner at 8 P.M. So dinner utility has increased instead of diminishing.
The law applies when units consumed in suitable size e.g. when a person is thirsty and he starts drinking water drop by drop. The utility of water will increase instead of diminishing.
It assumed that the units consumed should be homogeneous. If the lateral units are better than the previous units the utility of lateral units may increase instead of diminishing.
No Change Consumer Taste
It assumed that taste of consumer remains unchanged. If the taste of the consumers changed the law does not hold.
No Change Consumer Income
If the income of the consumer increases. His purchasing power will also increase. so demand for goods and services increases which shows more value i.e. greater utility.