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.

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.

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.