1. The Law of Equi-Marginal Utility ………

2. The Law of Equi-Marginal Utility……….
An extension to the law of diminishing marginal utility.

3. The Law of Equi-Marginal Utility………
Explains :
the behavior of a consumer in distributing his limited income among various goods and services

4. The Law of Equi-Marginal Utility……….
States :
how a consumer allocates his money income between various goods so as to obtain maximum satisfaction.

5. The Law of Equi-Marginal Utility……….
Assumptions

6. The Law of Equi-Marginal Utility……….
The wants of a consumer remain unchanged.
He has a fixed income.
The prices of all goods are given and known to a consumer.
He is one of the many buyers in the sense that he is powerless to alter the market price.
He can spend his income in small amounts

7. The Law of Equi-Marginal Utility……….
He acts rationally in the sense that he want maximum satisfaction
Utility is measured cardinally.

8. The Law of Equi-Marginal Utility……….
Consumer Behaviour
Consider two goods ‘x’ and ‘y’ on which the consumer has to spend his given income

9. The Law of Equi-Marginal Utility……….
The consumer’s behavior is based on two factors:
Marginal Utilities of goods 'x' and 'y'
The prices of goods 'x' and 'y'

10. The Law of Equi-Marginal Utility……….
MUx = MUy
MU refers to Marginal Utility
The consumer is in equilibrium in respect of the purchases of goods 'x' and 'y' when:

11. The Law of Equi-Marginal Utility……….
If MUx/Px & MUy/Py are not equal
&
If MUx/Px > MUy/Py
P refers to price
the consumer will substitute good 'x' for good 'y'.
the marginal utility of good 'x' will fall

12. The Law of Equi-Marginal Utility……….
The consumer will continue substituting good 'x' for good 'y' till MUx/Px = MUy/Py where the consumer will be in equilibrium
also known as the law of substitution

13. The Law of Equi-Marginal Utility……….
Limitations:
Assumption that utility can be cardinally measurable.
Assumption that marginal utility of money is constant.
Not applicable in the case of indivisible goods like TV sets, refrigerators, etc

14. The Law of Equi-Marginal Utility……….
Useful to consumers
to obtain maximum satisfaction
Helpful to producers
to get maximum profits

15. JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM.
FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA.
COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA.
CONTACT:
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