The Law of Diminishing Marginal Utility is one of the most important laws in economics. Because, the Law of Demand, Law of Consumer Surplus, Law of Equi marginal Utility and some other important economic theories, such as Equilibrium in perfect competition, Determination of price etc. are developed on the basis of this law. The practical significance of this law is greatly valuable for understanding consumers’ behaviour. The practical importance of this law in Economics is explained as under:
Practical Importance of Law of Diminishing Marginal Utility:
Law of Diminishing Marginal Utility is proven important in the following areas of economics-
- Taxation
- Price Determination
- Household expenditure
- Downward sloping demand curve
- Value-in-use and Value-in-exchange
- Redistribution of Wealth
- Variety in consumption
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