The law of diminishing marginal utility suffers from the following limitations:
(1) Measurability of utility:
The law assumes that utility of a commodity can be measured with the measuring rod of money. If a consumer goes on consuming several units of the commodity then from each successive units of commodity he derives some satisfaction.
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Those are measured in our example 25, 20, 15 and so on. But utility is a subjective concept. It is not objective like a matter in the laboratory. It is a short of feeling and introspection. How can we measure feeling by giving number. This appears to be impossible.
(2) Abnormal persons:
The law is not applicable to abnormal persons. If a man is drunkard the more liquor he drinks the more he is tempted to drink. The law does not operate here. In case of miser the more he gets more happy he becomes or in other words he gets more marginal utility.
Not only money, love, hobbies, good music, novel and stories of Shakespearean plays are exceptions of the law. D. S. Watson writes, “That the marginal utility of a kiss can never be negative.”
(3) The law assumes that ‘other things’ must remain constant:
It implies that the habits, tastes, temperament and income of the consumer remain constant for the operation of the law. If any of these things changes, the consumer will behave differently and the law will not operate.
(4) The law is not applicable in case of rare collections:
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It is said that the law is not applicable in case of rare collection of stamps, coins and artistic objects. As one gets more and more of it lie will be interested in getting still more. But this is not true.
A collector of stamp is interested in collection of stamps of different variety not the same variety. If he collects the stamps of same variety then from every additional unit he will derive less and less of satisfaction.
(5) Initial stages:
The law does not apply in the initial stages. If the successive units of the commodity consumed are very small as drops of water to thirsty persons then initially the marginal utility may increase rather than decrease.
(6) The law depends on the supply of the substitutes and complements:
The law does not depend upon the supply of the commodity a consumer consumes but also on its substitutes and complements. If the green cocoanuts are available in plenty the utility of Sarabat win decrease rapidly.
(7) Indivisible Goods:
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The law is difficult” to operate in case of indivisible goods like automobiles, television sets and over coats.