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Limitations of the Law of Equi-Marginal Utility

Written By Unknown on Saturday 22 June 2013 | 12:06

The law has been subject to certain criticisms or limitations. They are as follows: 
  • The law is based on unrealistic assumption, being, an extension of the law of diminishing marginal utility, it involves all the unrealistic assumptions and conditions such as homogeneity, continuity, constancy etc. 
  • The proportionality rule presumes cardinal measurement of utility, but, it is not an unrealistic phenomenon. 
  • The law cannot be applied to indivisible goods. On practical grounds, it looks ridiculous to equate utility of television set to coffee for a rupee. 
  • Consumer does not behave rationally all the time quite often; his behaviour is influenced by habit, social customs, fashions advertising, propaganda etc. 
  • It has also been pointed out by many critics, that it is; wrong to assume that the marginal utility of money will remain constant. Actually when money is spent, the remaining units of money will tend to have a greater marginal utility. Thus there is a backward operation of the law of diminishing marginal utility. Prof. Friedman however defends Marshall, on this point, stating that Marshall was perfectly right in his assumption, as only a part of a consumer’s income at a time is spent on purchasing a few commodities. This income which is kept for allocation in the family budget can very well be assumed to be as given and will be constant as the marginal utility of money changes very gradually with large changes in the stock of money. 
  • Ignorance on the part of the consumer about market prices and utility of different goods and the uncertain scale of preference due to his wavering mind also pose a limitation to the operation of this law. 

Despite all these criticisms, it can, however, be concluded that every rational consumer tends to behave according to the law to derive maximum satisfaction though he may not necessarily be forced to do so. On the theoretical ground, it is an analytical proposition of the law that the consumer can maximize his satisfaction only when the marginal utilities are equalized. Analyzing the behavioral aspect of a consumer the law is thus, merely a statement of tendency that has been a common experience.

Notes provided by Prof. Sujatha Devi B (St. Philomina's College)
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