PRESENTATION ON LAW OF EQUI MARGINAL

UTILITY

BY : SANJANA.N

REGISTRATION ID :
CLASS : BA LLB 1 ‘B’
SUBJECT : ECONOMICS
TO : JERRIN ANNA JOE
[BMS COLLEGE OF LAW]
 INTRODUCTION
• The law of equi marginal utility was presented in 19th
century by an Australian economists H. H. Gossen. It is
also known as law of maximum satisfaction or law of
substitution or Gossen's second law.

• A consumer has number of wants. He tries to spend

limited income on different things in such a way that
marginal utility of all things is equal. When he buys
several things with given money income he equalizes
marginal utilities of all such things.

• The law of equi marginal utility is an extension of the

law of diminishing marginal utility.

• The consumer can get maximum utility by allocating

income among commodities in such a way that last dollar
spent on each item provides the same marginal utility.
 DEFINITION

• "A person can get maximum utility with his given income when it is spent on
different commodities in such a way that the marginal utility of money spent
on each item is equal".

• It is clear that consumer can get maximum utility from the expenditure of his
limited income. He should purchase such amount of each commodity that the last
unit of money spend on each item provides same marginal utility
 FORMULA

Modern economist call it as the ‘ Law of Proportionality’.

According to them a person gets maximum satisfaction when the weighted marginal
utilities are equal. In other words, when marginal utilities of one commodity divided
by its price and the marginal utility of the other commodity divided by its price are
equal.

MUx / Px = MUy / Px =……. = MUn /Pn

 EXPLANATION
Each consumer aims at maximization of his satisfaction while spending his given income which has alternative uses on various
goods and services, like,, food, clothing, shelter, education, sanitation and health.
He arranges his wants in order of intensity and the order of satisfaction is arranged on the basis of intensity of these wants and goes
on satisfying his wants till the marginal utility of all the goods is equalized in proportion to money spent on them.

In this manner he can maximize his satisfaction. He will substitute that commodity which has more utility in place of less marginal
utility and he continues up to that point where the marginal utility from all goods is equalized

• The operation of the law can be understood with the example.

₹2 ₹3
On what basis will he decide the quantities he is buying?
 Total money=Rs24
Price of pizza (x)= Rs 2
Price of burger (y)= Rs 3

MU of x & y MU of money Expenditure

Units MUx MUy MUx/Px MUy/Py

1 20 24 10 8

2 18 21 9 7

3 16 18 8 6

4 14 15 7 5

5 12 9 6 3

6 10 3 5 1
 IMPORTANCE OF THE LAW

• The law of equi marginal utility is helpful in the field of production.

• The law is used in the field of exchange.
• The law is applicable in consumption.
• The law is useful for workers in allocating the time between work and
rest.
• The law holds well in case of saving and spending.
 LIMITATIONS
• The law is not applicable in case of knowledge.
• The law is not applicable in case of indivisible goods.
• There is no measurement of utility. It is psychological concept. It is not
possible to express it into quantitative form.
• The law does not hold well in case fashion and customs.
• The does not hold well in case of very low income.
• The law is not applicable in case of durable goods.
• The law fails when goods of choice are not available.
• There are certain lazy consumers. They do not care for maximum utility. The
law fails to operate in case of laziness of consumers. They go on consuming
goods with comparing utility.
 ASSUMPTIONS

• Consumer’s income is given (limited resources).

• The law operates based on the law of diminishing marginal utility.
• The consumer is a rational economic individual. This means that the consumer
wants to gain maximum satisfaction with limited resources.
• The marginal utility of money is constant.
• Another important assumption is that the utility of each commodity is measurable in
cardinal numbers (1, 2, 3 and so on).
• The prices of the commodities are constant.
• There prevails perfect competition in the market
 BIBLIOGRAPHY/ LIST OF REFERENCES

• Book : principles of economics – M.L. Jhingan

• http://managedstudy.com/micro/law_of_equi_marginal_utility.htm

• https://www.britannica.com/topic/equimarginal-principle

THANK YOU :)