LIMITATIONS OF DIMINISHING MARGINALILUITY
cannot be measured ca rdinally: The
basis of the utility
analysis- that it is
measurable- is defective because utility
is a subjective and psycholo gical concept which cannot be
measured cardinally. In really, it can
be measured ordinally.
commodity model is unrealistic: The utility analysis is a single
commodity model in which the utility of one commodity is regarded
independent of the other. Marshall considered substitutes and complementary as
one commodity, but it makes the utility analysis unrealistic.
iii. Money is
an imperfect measure of utility : Marshall measures utility in
terms of mone y, but mone y is an
incorrect and imperfect measure o f utility because the value of mone y often
utility of money is not constant: The fact is that a consumer does
not buy only one commodity but a number o f commodities at a time. In
this wa y when a major part of his income is spent on buying commodities, the
marginal utility of the remaining stock of mone y increases.
v. Man is
not rational: This assumption is also unrealistic because no co
nsumer compares the utility and disutility from each unit of a commodity
while buying it. Rather, he buys them under
the influence of his desires, tastesor habits. Moreover, consumer's incomeand prices
commodities also influence his purchases. Thus the consumer does not buy
commodities rationally. This makes the utility analysis unrealistic and
vi. Utility analysis does not study income effect,
substitution effect a nd price effect: The utility analysis does
not explain the effect o f a rise or fall in the income of the consumer on the
demand for the commodities. It thus neglects the income effect. Again when with
the change in the price o f one commodity there is a relative change in the
price of the other commodity, the consumer substitutes one for the other. This
is the substitution effect which the utility analysis fails to discuss.
vii.Utility analysis fails to
clarify the study of inferior and giffen goods: Marshall's
utility analysis of demand does not clarify the fact as to
why a fall in the price of inferior and giffen goods leads to a decline in its
The assumption that the
consumer buys more units of a commo dity whe n its price falls is unrealistic: It ma y be true in the case of food products
like oranges, bananas, apples, etc. but not in the case of durable goods.
The utility analysis breaks down in the case of durable consumer
goods like scooters, transistors, radio, etc. because they are indivisible. The
consumer buys only one unit of such commodities at a time so the it is neither
possible to calculate the marginal utility o f one unit nor can the demand
schedule and the demand curve for that good be drawn. Hence the utility
analysis is not applicable to indivisible goods.