Gossen of Germany. The law of equi-marginal utility explains the behaviour of a consumer when he consumers more than one commodity. Wants are unlimited but the income which is available to the consumers to satisfy all his wants is limited.
Therefore, consumer will be in equilibrium when he is buying 5 units of good X and 3 units of goods Y and will be spending Rs. The law of equi-marginal utility can be graphically illustrated in another way also.
Suppose a consumer has got OO amount of money income which he has to spend on two goods X and Y. In this figure, curve AB shows the marginal utilities of successive rupees spent on commodity X with O as the point of origin.
CD shows the marginal utilities of successive rupees spent on commodity Y with O as the origin. It is worth noting that we read the number of rupees spend on commodity X from left to right and read the number of rupees spent on commodity y from right to left. It will be seen from this figure that the two curves AB and CD showing the diminishing marginal utility of rupees spent on X and Y respectively, intersect at point E.
That is, at point E marginal utility of rupee spent on commodity X MU is equal to the marginal utility of rupee spent on commodity Y MUy. It is, thus, clear that the loss in satisfaction is greater than the gain in satisfaction by spending MN amount of money more on X and the same amount of money less on Y.
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. The above equimarginal condition for the equilibrium of the consumer can be stated in three ways.The Law of Equi marginal Utility is one of the 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 wan. In economics, utility is the satisfaction or benefit derived by consuming a product; thus the marginal utility of a good or service is the change in the utility from an increase in .
The idea of equi-marginal utility was first mentioned by tranceformingnlp.com () of Germany.
Hence, it is called Gossen’s second Law of consumption. Alfred Marshall made significant refinements to this law in his ‘Principles of Economics’. According to this law, the consumer will try to.
The Law of Equi-Marginal utility (LEMU) The idea of equi-marginal utility was first mentioned by tranceformingnlp.com () of Germany.
Hence, it is called Gossen’s second Law of consumption. Alfred Marshall made significant refinements to this law in his ‘Principles of Economics’. The equi-marginal principle is based on the law of diminishing marginal utility.
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. The law of equi-marginal utility is simply an extension of law of diminishing marginal utility to two or more than two commodities.
The law of equilibrium utility is known, by various names. The law of equilibrium utility is known, by various names.