What is law of equi-marginal utility with example?
The consumer will gain maximum satisfaction if he spends OM amount of money (Rs. 30) on chocolates and OM’ amount of money (Rs. 40) on ice-creams because when he buys (his combination) the marginal utilities of the two are equal (PM=PM’). Any other combination of the two goods will give less total satisfaction.
How do you find the law of equi-marginal utility?
The marginal utility per rupee spent is the marginal utility obtained from the last unit of good consumed divided by the price of good (i.e., MUX/PX or MUY/PY). A consumer thus gets maximum utility from his limited income when the marginal utility per rupee spent is equal for all goods.
What is marginal utility with diagram?
It should be carefully noted that is the marginal utility and not the total utility than declines with the increase in the consumption of a good. The law of diminishing marginal utility means that the total utility increases but at a decreasing rate.
What is law of equi-marginal principle?
The equimarginal principle states that consumers will choose a combination of goods to maximise their total utility. This will occur where. The consumer will consider both the marginal utility MU of goods and the price.
How does equi-marginal utility explain consumer equilibrium?
The law of equi-marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spend on each good is equal. In other words, consumer is in equilibrium position when marginal utility of money expenditure on each goods is the same.
What happens to MU when positive?
TU increases with an increase in consumption of a commodity as long as MU is positive. In this phase, TU increases but a diminishing rate as MU from each successive unit tends to diminish.
How does law of equi-marginal utility explain consumer equilibrium?
What does the law of equi-marginal utility states Mcq?
Thus, according to the two commodities consumer equilibrium or the law of Equi-marginal utility, a consumer gets maximum satisfaction, when ratios of MU of two commodities and their respective prices are equal.
What is the importance of law of equi-marginal utility?
The equi-marginal utility concept has an important influence on price determination. When a product is scarce, the law of substitution comes to our assistance. We are beginning to replace the more scarce and expensive items with less scarce or cheaper products.
What is an example of marginal utility?
Marginal utility, then, is the change in total utility from consuming one more or one less of an item. For example, the marginal utility of a third slice of pizza is the change in satisfaction one gets when eating the third slice instead of stopping with two.
What is the Equi-marginal law How does this law help in resource allocation between the competing alternative uses of the resources?
This principle is also known the principle of maximum satisfaction – by allocating available resource to get optimum benefit . This principle provides a basis for maximum utilization of all the inputs of a firm so as to maximize the profitability.
What are the importance of law of equi-marginal utility?
What is the law of equi marginal utility?
Suppose the prices of the goods are given for the consumer. The law of equi-marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spend on each good is equal.
How do you find the marginal utility of money expenditure?
Now, the marginal utility of money expenditure on a good is equal to the marginal utility of goods divided by the price of the goods. Where MU e is marginal utility of money expenditure and MU z is the marginal utility of the goods X and P z is the price of X.
What is the equimarginal condition for the equilibrium of the consumer?
The above equimarginal condition for the equilibrium of the consumer can be stated in three ways. (1) A consumer is in equilibrium when he equalizes weighted marginal utilities of all goods, that is, when the marginal utility of each good weighted by its price is equal.
When is the marginal utility positive or negative?
The marginal utility is positive when the consumption of an additional unit of a product results in the increase in the total utility. Getting a coupon of free hair spa is its example. It is negative when the consumption of an additional unit of a product results in the decrease in the total utility.