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Relationship between the Law of Diminishing Marginal Utility and the Law of Equi-Marginal Utility

Written By Fathimath Sama on Saturday, 22 June 2013 | 11:47

  • The law of equi-marginal utility is an extension of the law of diminishing marginal utility. It considers the satisfaction derived from the number of commodities at a time. the law of diminishing marginal utility is applicable only to a single commodity whereas the law of equi-marginal utility is applicable to several commodities at a time, therefore, it has greater practical value. 
  • The law of equi-marginal utility also accepts the basic principle of diminishing marginal utility, that is, as consumption of a commodity increases, its marginal utility decreases. 
  • Both the laws advocate the same principle that marginal utility must be proportional to the price to maximize total utility. The law of diminishing marginal utility however deals with a single commodity only and states that no consumer shall pay a price for the commodity greater than its marginal utility. Thus with a single commodity his equilibrium condition is marginal utility equals price. The same logic is extended further by law of equi-marginal utility and states that in the case of several commodities the equilibrium condition is the marginal utility of all commodities should be proportional to their prices. 
Thus, Mua      Mub 
           Pa   =   Pb


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