# Law of equi marginal utility in economics. Assumptions And Limitations Of Law Of Equi Marginal Utility 2019-01-06

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## Marginal Utility Analysis Suppose apples and oranges are the two commodities to be purchased. It assumes that goods can be substituted by the individuals for getting maximum satisfaction. Marshall has developed and given the present shape of this law. As a result marginal utility of money, instead of remaining constant, increases considerably. Thus, we can say that the law of equi-marginal utility is widely applicable law and it is important from any aspect of any economic activity.

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## What is equi Definition In the words of Prof. Their share in the production process rent, wages, interest and profits is determined according to the principle of marginal productivity. Indivisibility of Goods The theory is weakened by the fact that many commodities like a car, a house etc. He wishes to get maximum output and profit. P a, P b, and P c are prices of a, b, c commodities. The marginal utility of money remains constant. The producer continues to substitute one factor for the other, till this objective is achieved.

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## Principle of Equi He states that a person should spend his limited time among alternative uses such as reading; studying and gardening, in such a way that the marginal utility from all these uses are equal. He wants maximum net profit. But such a calculation is not possible. If these variables change the law will not operate. Reading of books provides more satisfaction and knowledge to the scholar.

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## Law of Equimarginal Utility: Explanation, Limitations and Other Details Only at that point the consumer will be in equilibrium. It is also called as the Law Of Indifference because the consumer, when he reaches the point of maximum satisfaction, becomes indifferent about any other combination of the commodities bought. 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. The law does not imply that the additional unit decreases total production, which is known as ; however, this is commonly the result. She wasn't as hungry as before, so the second slice of pizza had a smaller benefit and enjoyment as the first. Hence, a rational individual tries to optimize the available scarce resources in order to attain maximum satisfaction.

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## Economics Tutorials: Law of EquiMarginal Utility The result of this substitution will be that the marginal utility of the former will fall and that of the latter will rise, till the two marginal utilities are equalized. He will continue to substitute the factors of production till the point where marginal productivity of factors are equalised to their prices. Later on Alfred Marshall refined and developed it. Hence, a rational individual tries to optimize the available scarce resources in order to attain maximum satisfaction. The above equimarginal condition for the equilibrium of the consumer can be stated in three ways.

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## Law Of Diminishing Marginal Utility In this case, the law loses its credibility. Because of this reason, the law of equi-marginal utility is further referred to as the law of maximum satisfaction, the principle of income allocation, the law of economy in expenditure or the law of substitution. That is why the law is also called the Law of Substitution or the Law of equimarginal Utility. This is so because he may not be able to divert expenditure to more profitable channels from the less profitable ones. Both the first unit of commodity Y and the third unit of commodity X give the same amount of utility. There is no need to change the direction of expenditure from one item to another when there are gifts of nature. We know that human wants are unlimited whereas the means to satisfy these wants are strictly limited.

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## Law of equi Quantity Determinant of utility — not correct: The law of equi marginal utility assumes that utility of a commodity is determined by its quantity. The more we buy, the less total utility increases. The calculation of marginal utility of durable goods is impossible. If it's less or equal to your imagined price, go for it but if not, think twice. Utilities are Interdependent This law assumes that commodities are independent and therefore their marginal utilities are also independent.

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## Law Of Equi The third slice, as before, holds even less utility as the individual is now not hungry anymore. Let us calculate the total utility of commodities consumed to understand this. Let us substitute one orange for one apple so that we buy four oranges and three apples. The law is called the law of substitution. The consumer is bound to use commodity, which provides low utility due to non availability of goods having high utility. The law of diminishing marginal returns is also known as the law of diminishing returns, the principle of diminishing marginal productivity, and the law of variable proportions.

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