Economics Marginal Utility Questions Medium
The law of equi-marginal utility, also known as the law of diminishing marginal utility, states that a rational consumer will allocate their limited income or resources among different goods and services in such a way that the marginal utility derived from the last unit of each good is equal. In other words, a consumer will maximize their total utility by distributing their spending or consumption in a way that the additional satisfaction gained from consuming one more unit of each good is equal.
According to this law, a consumer will continue to consume additional units of a good until the marginal utility derived from it equals the marginal utility derived from consuming other goods. If the marginal utility of a good exceeds the marginal utility of another good, the consumer will allocate more resources towards the good with higher marginal utility until the marginal utilities are equalized.
For example, let's say a consumer has $10 to spend and is considering buying either apples or oranges. If the marginal utility of the first apple is higher than the marginal utility of the first orange, the consumer will allocate more of their budget towards apples until the marginal utility of the last apple is equal to the marginal utility of the last orange. This way, the consumer achieves equilibrium in utility and maximizes their overall satisfaction.
The law of equi-marginal utility is an important concept in economics as it helps explain how consumers make choices and allocate their resources based on the satisfaction or utility they derive from different goods. It also highlights the diminishing marginal utility, which means that as a consumer consumes more units of a good, the additional satisfaction or utility derived from each additional unit decreases.