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Marginal Utility is the additional satisfaction gained by consuming one more unit of a commodity. 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.
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. Suppose a man purchases two goods X and Y whose prices are P X and P Y, respectively.
This law explains how the consumer spends his limited income on various commodities to get maximum satisfaction. The law of equi-marginal utility is also known as the law of substitution or the law of maximum satisfaction or the principle of proportionality between prices and marginal utility.
Sep 20, 2022 · So, the law of equi marginal utility explains how a consumer allots their limited income to various goods and services to attain maximum satisfaction. Australian economist H. H. Gossen was the first to come up with this law.
The law of equi-marginal utility states that the equalisation of marginal utility in all the cases of purchases maximises total utility and thus the total satisfaction of a consumer.
The law of equi-marginal utility is simply an extension of the law of diminishing marginal utility to two or more than two commodities. In cardinal utility analysis, this law is stated by Lipsey in the following words:
The Law of equimarginal Utility is another fundamental principle of Economics. This law is also known as the Law of substitution or the Law of Maximum Satisfaction. We know that human wants are unlimited whereas the means to satisfy these wants are strictly limited.
Marginal Utility analysis helps us understand the behavior of a consumer by looking at the way he spends his income on different goods and services to attain maximum satisfaction. In this article, we will look at the assumptions, laws, and limitations under marginal utility analysis.
Marginal utility refers to the utility gained from an incremental purchase, in order to make rational decisions. In many cases, the goal is to reach a point where the marginal utility per price of the two products is equal. Created by Sal Khan. Questions. Tips & Thanks. Want to join the conversation? Log in. Sort by: Top Voted. Kris Kalavantavanich
The Equi-Marginal principle in consumption states that consumers will maximise total utility from their incomes by consuming that combination of goods where: MUa = Pa.
