Law of Equi-Marginal utility

Maximum satisfaction out of the expenditure of a given sum can be obtained if the utility derived from the last unit of money spent on each object of expenditure is, more or less the same.


Illustration:-

Suppose a man goes to the market with Rs.400 in his pocket, which is want to spend on oranges, caps and milk, and further. Suppose that the utility he expects to derive from each unit of Rs.20 spent on these commodities is follows.

Rs25/unit

Utility derived from the Rs.25 spent on

Oranges

Caps

Milk

1St

10

13

11

2nd

8

12

9

3rd

7

10

6

4rth

5

8

5

5th

4

6

4

6th

3

4

2

7th

2

3

1

The purchaser will spend the first 25 on the object, which will give him the greatest satisfaction. In this case such an article is cap, the utility of its first unit is 13, which is maximum.

Guided by the same motive, he will spend the second Rs. 25 on caps. He will spend the third Rs. 25 on milk and the forth-on oranges. In this way he will go spending money. The following table indicates the order in which he will spend the Rs.400 he has got with him.

Rs.25

Object of expenditure

Utility derived

1St

Cap

13

2nd

Cap

12

3rd

Milk

11

4rth

Orange

10

5th

Cap

10

6th

Milk

9

7th

Orange

3

8th

Cap

8

9th

Orange

7

10th

Cap

6

11th

Milk

6

12th

Orange

5

13th

Milk

5

14th

Orange

4

15th

Cap

4

16th

Milk

4

Total utility derived from Rs. 400 out off 117

The above table shows that he will spend Rs. 25 each 5 on oranges, 6 on caps, and 5 on milk, and will in total derive 117 units of utility. This is the maximum satisfaction that he can obtain out of his expenditure. If he does not follow this scheme of expenditure, he will not be able to derive maximum total utility.

Therefore, if we want to derive maximum satisfaction out of our expenditure, we should spend our money in such a way as to derive, more or less, the same satisfaction from the last unit of money spends on each head. This is the law of Equimarginal utility.

5 Comments on "Law of Equi-Marginal utility"

  1. perfect now i understood what is law of equi marginal utility

  2. that is not perfect . if you wanna collect a perfect then collect professor asghar ali notes which are toooooooo easy to understand

  3. please post the link then…

  4. Post the link of asghar ali notes

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