Limitations of the Law

Limitations of the Law:

The law of equi-marginal utility rises with the difficulties illustrated below:

1. Indivisibility of Goods:

The hypothesis is weakened by the fact that numerous commodities like a car, a house and so on are indivisible. In the situation of indivisible goods, the law is not valid.

2. The Marginal Utility of money is not constant:

The theory depends on the supposition that the marginal utility of money is steady. However that is not actually so.

3. The Measurement of Utility is not possible:

Marshall defines that the price of the consumer is willing to pay for a commodity is equal to its marginal utility. However modern economists argue that, when two persons are paying an equivalent price for given commodity, it does not mean that both are acquiring the similar level of utility. Therefore utility is a subjective concept, that can’t be measured, in quantitative terms.

4. Utilities are Interdependent:

This law supposes that commodities are self-governing and hence their marginal utilities are too independent. However in real life commodities are either replacements or complements. Their utilities are thus interdependent.

5. Indefinite Budget Period:

According to Professor K.E. Boulding, vague budget period is the other difficulty in the law. Generally the budget period is supposed to be a year. However there are certain commodities that are available in numerous succeeding accounting periods. It is hard to compute marginal utility for these commodities.

In conclusion, we might say all prudent and rational persons are predicted to act upon the law consciously or unconsciously. Since Chapman puts it,

“We are not, obviously compelled to allocate our incomes according to the law of substitution or equi-marginal expenditure, as a stone thrown into air is compelled, in a logic to fall back to the earth, however as a matter of fact, we do in a convinced rough fashion, since we are reasonable.”

 

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