MARGINAL RATEOF SUBSTITUTION

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MARGINAL RATEOF SUBSTITUTION From schedule given above, we can see that when we move from one combination of the two commodities to another, we arc in fact substituting some units of one commodity for some units of another. We can also work out the rate at which this substitution lakes place. The Marginal Rate of Substitution shows how much of one commodity […]

DEMAND CURVE

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DEMAND CURVE We give here a demand curve of an imaginary consumer. The demand curve simply hows ho the quantity purchased varies with the  variation in price. Along OX are represented the quantities of the good purchased and along OY the prices. It  be seen  that at the price OP, OM quantity i purchased. a 01″ the quantity purchased i. […]

CONSUMER’S EQUILIBRIUM

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CONSUMER’S EQUILIBRIUM CONSUMER’S EQUILIBRIUM We have discussed above two important laws of consumption. vil..• the law of diminishing marginal utility and the law of equi-marginal utility in terms of these laws, we can indicate the position of consumer’s equilibrium i.e., when the consumer attains a position of maximum satisfaction and would have no further incentive to make any change in the  quantity […]

Practical Importance of the Law

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Practical Importance of the Law The Law of SUbstitution, also known as the Law of Equi-Marginal Utility, has a very wide application. It is applicable to the utilisation of time, distribution of assets in various forms and the allocation of resources among various uses. It also applies to the use of money now and its use in the future, i.e., in […]

Diagrammatic Representation

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Diagrammatic Representation The principle of equi-marginal utility can be explained with the help of the diagram  given below. In this figure. along the axis OX. from left to right  on the portion OX) is measured the quantity of the good A and from right to left,  on the portion OX’) is measured the quantity of the good B. Along […]

LAW OF EQUI-MARGINAL UTILITY

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LAW OF EQUI-MARGINAL UTILITY Owing to multiplicity of wants and scarcity of means wants are competitive. We have, therefore, more urgent and less urgent wants. When we are weighing in our mind whether to buy a little more or a little less of a commodity, it seems we are trying to balance the marginal utility of the commodity and that of […]

Marginal Utility and Price

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Marginal Utility and Price It is clear from the above discussion that marginal utility and price are inter-related. The two coincide or price measures marginal utility. The consumer stops where the price and the marginal utility are equa\. All units of the commodity being interchangeable, what is paid for the marginal unit is paid for every other unit. Therefore, we can […]

Marginal Utility

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Marginal Utility Marginal utility can be defined as the change in the total utility resulting from a one-unit change in the consumption .If a commodity IH~I’ unit  time. When a man is purchasing a commodity. he is consciously or unconsciously weighing in his mind the price he has to pay and the utility or each unit that he buys. lie […]