Utilities are Independent
Marginal utility analysis assumes that the utilities of different commodities are independent 01 one another. That is, the utility of one commodity docs not in any way affect that of another. In other words, the satisfaction derived from the consumption of one good is the function of that good alone and is not affected by the consumption of another. It depends on the quantity consumed of one good and not of
another. On this assumption, the total utility of all goods consumed by a consumer is simply the sum total of the separate utilities of all the goods consumed by a consumer. Thus, according to this assumption,the utilities of various goods are additive. i.e., separate utilities of the various goods can be added to obtain the total SUIII of the utilities of all goods consumed.
(iii) Constant Marginal Utility of Money
Another important assumption of the marginal utility analysis is that the marginal utility of money remains constant even though the quantity of money with the consumer is diminished by the successive purchases made by him. It is assumed that while marginal utility of a commodity varies with the quantity of the commodity purchased, the marginal utility of money remains throughout the same as the quantity of the good purchased varies. This assumption becomes necessary because the marginal utility of a commodity is measured in terms of money. It is considered desirable that the measure itself should not keep changing. In the words of Professor Tapes . Majumdar, “If money is supposed 141 prnvide the evidently as all measuring ruds, its unit must he invariant: it nmst measure t lu: same amount of utility in all circumstances”. When a person purchases more ofa good. the amount of money with him must diminish and the marginal utility of money must increase. But this variation in the marginal utility 01 money.
The marginal utility analysis also assumes ‘that from one’s own experience (judging what happens in one’s own mind), it is possible to draw inference about another person. This is self-observation applied to another person. It is assumed that the mind of men work identically in similar situations. This is how a system of taxation is built on the assumption that the same incomes mean the same thing to ail persons irrespective of dissimilar circumstances. That is why according to the law of diminishing marginal utility, the marginal utility decreases when consumers have more of a good. The advocates of behaviourism ‘ (observing actual behaviour) do not subscribe to this view. According to them it is not possible to make a correct guess work about the working of another mind from one’s own mind. Now we shall study the two basic laws governing consumer behaviour, the law of diminishing marginal utility and the law of equi marginal