BBA 103 N

Law Of Equi-Marginal Utility

The Law is an extension of the law of
DMU The law of DMU applies in case of
single commodity. In reality , the
consumer does not consume one
commodity but a no of commodities at a
given time. It is also called Gossen,s
Second Law. Dr. Marshall called it as ‘Law
of Maximum Satisfaction’.
Prof. Hibdon named it ‘ Law of Rational
Consumer
 Law Of Equi-Marginal
Utility
• Acc. to Prof Marshall: “ If a person has a
thing which hew can put to several uses ,
he will distribute these uses in such a way
that it has the same marginal utility in all.”
• Acc. to Samuelson : “ A consumer gets
maximum satisfaction when the ratio of
marginal utilities of all commodities and
their prices is equal”.
• MU1 = MU2 =MU3
 Law Of Equi-Marginal
Utility
• Assumption:
 Every consumer wants to get
maximum satisfaction.
 Price of commodity remains
constant
Income remains constant
Consumer has rational behavior
No change in taste ,fashion ,
habits ,custom
 Importance of the Law
• Consumption
• Production
• Exchange
• Distribution
• Guide to the individual
 Limitation of the Law
• Irrational behavior of the consumer
• Utility is subjective
• MU of money remains constant
• Unrealistic Assumptions
• Ignorance of the consumer
• Indivisible goods
• Scarcity goods