Equi marginal utility

The maximization of utility is not possible due to low income. The equi-marginal principle states that a consumer will be maximizing his total utility when he allocates his fixed money income in such a way that the utility derived from the last unit of money spent on each good is equal.

Hence it is called Gossen's second Law. Any other combination of the two goods will give less total satisfaction. It does not work when there are frequent prices changes. The law fails to operate in case of laziness of consumers. We therefore, conclude that the consumer derives maximum satisfaction when he is allocating money expenditure among different commodities in such a way that the marginal utility of money spent on each of them is the same.

Frequent Changes in Prices: Due to frequent changes in prices of different goods the law may not apply. Therefore, the consumer can derive maximum satisfaction only when marginal utility per rupee spent on good X is the same as the marginal utility per rupee spent on another good Y.

law of equi marginal utility reference

Theory of Consumer Behavior Law of Equi-Marginal Utility Law of Equi-Marginal Utility explains the relation between the consumption of two or more products and what combination of consumption these products will give optimum satisfaction.

In conclusion, we may say all prudent and rational persons are expected to act upon the law consciously or unconsciously. It applies to consumption Every rational human being wants to get maximum satisfaction with his limited means.

Rated 10/10 based on 7 review
Law of Equi Marginal Utility With Explanation And Example