Importance of the Law

Equi-Marginal Utility - Importance of the Law


According to Marshall, “the applications of this theory extend over approximately every field of economic activity.”

1. It applies to consumption:

Each and every rational human being wants to acquire maximum satisfaction with his restricted means. The consumer manages his expenditure in such a manner that,

MUx/Px = MUy/Py = MUz/Pz

And hence he will acquire maximum satisfaction.

2. It applies to production:

The goal of the producer is to obtain maximum output with least-cost, and hence his profit will be maximum. Towards this end, he will replace with one factor for the other till

MP1 /P1 = MPc /Pc = MPn /Pn

3. Distribution of Earnings between savings and consumption:

According to Marshall, a prudent person will endeavor to allocate his resources among his present requirements and future requirements in such a manner that the marginal utility of the last rupee put in savings is equivalent to the marginal utility of the last rupee spent on expenditure.

4. It exerts to distribution:

The common theory of distribution includes the principle of replacement. In distribution, the rewards to the different factors of production, that is their associative shares, are found out by the principle of equi-marginal utility.

5. It Applies to Public Finance:

The principle of ‘Maximum Social Advantage’ as pronounced by Professors Hicks and Dalton defines that, the revenue must be distributed in such a manner that the last unit of expenditure on different programs brings equivalent welfare, therefore social welfare is maximized.

6. Expenditure of Time:

Professor Boulding associates Marshall’s law of equi-marginal utility to the expenditures of restricted time, that is, 24 hours. He defines that a person must spend his limited time among alternative utilizations like reading, studying and gardening, in such a manner that the marginal utility from all these utilizations are equivalent.


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