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Questions
Explain the Law of Equi-Marginal Utility.
State the law of equi-marginal utility.
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Solution
The law of equimarginal utility states that a consumer allocates his expenditure on various commodities in such a manner that the utility derived from each additional rupee spent on each of the commodities is equal. Algebraically, this is represented as the following equality.
`(MU_x)/(P_x) =(MU_y)/(P_y) = (MU_m)/(P_n) = ...MU_m`
In the above figure, OO1 represents the total income of a consumer. MUx and MUy represent the Marginal Utility curves of commodity x and commodity y, respectively. Point E represents the point of the consumer's equilibrium, where:
`(MU_x)/(P_x) = (MU_y)/(P_y) = MU_m`
At this point, OM amount of income is spent on commodity x and the remaining amount ofincome,e MO1 is spent on commodity y.
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