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  Equi-Marginal Utility

Law of Equi-Marginal Utility:

The thought of equi-marginal principle was first introduced by H.H.Gossen (1810-1858) of Germany. Therefore it is termed as Gossen’s second Law. Alfred Marshall made important modifications of this law in his ‘Principles of Economics’.

The law of equi-marginal utility elucidates the behavior of a consumer whenever he consumers more than one commodity. Needs are unlimited however the income that is accessible to the consumers to satisfy all his needs is restricted. This law elucidates how the consumer spends his limited income on different commodities to obtain maximum satisfaction. The law of equi-marginal utility is also termed as the law of substitution or the law of maximum satisfaction or the principle of proportionality among prices and marginal utility.

Definition:

In words of Prof. Marshall, “When a person has a thing that can be put to numerous uses, he will distribute it among such uses in such a manner that it has the similar marginal utility in all”.

Assumptions:

1. The consumer is rational therefore he wants to acquire maximum satisfaction.
2. The utility of each and every commodity is computable.
3. The marginal utility of money stays constant.
4. The income of the consumer is specified.
5. The costs of the commodities are specified.
6. The law depends on the law of retreating marginal utility.

 

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