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 money. Bllt what  commodity  and the marginal utilities of a host of other commodities which we could . Money thus builds II bridge for us to pass from one commodity to another. This is marginal utility to him of the commodity begins to fall. Then. he feels that he would gain greater satisfaction by spending additional units of money on something eise. He goes on substituting one thing for another. (after a point). until the-whole of the money he wanted to spend is exhausted.

Take two goods A and 8. So long as the marginal utility of money spent on good A is not equal to the marginal utility of money spent on good D. the consumer will increase his satisfaction by substituting one good for the other until the marginal  utility of money is the same in both the cases. The consumer will attain maximum satisfaction. hence will be in equilibrium position when he has so adjusted his expenditure that marginal utility of money to him in each direction of his purchase is the same. If marginal utility of money spent on the good A is greater than the marginal utility of money spent on the good B, the consumer will withdraw some money from the purchase of D and will spend it on A till the marginal utility of money in the two cases becomes equal: Any arrangement of expenditure. other than the one which equalizes the marginal utility of money in each direction of his purchase. will yield the consumer less amount of satisfaction.

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LAW OF EQUI-MARGINAL UTILITY