The Law of Equi-marginal Utility, also known as Gossen's Second Law, states that consumers will allocate their budget in a way that equalizes the marginal utility per rupee spent across different goods. When making purchasing decisions, consumers will continue to buy more units of a good until the last rupee spent on that good yields the same marginal utility as a rupee spent on any other good. This ensures consumers reach the highest possible total utility from their budget.

1. LAW OF EQUI-MARGINAL UTILITY
(GOSSEN’S SECOND LAW)

2. The Law of Equi-marginal utility is the further
elaboration of the Law Of Diminishing Marginal
Utility.
It is also known as the Law of Substitution and
the Law of maximum satisfaction, the Law of
Indifference, The Law of Economy Of Expenditure,
The Law of Equi-Marginal Returns.
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3. In the words of J.R. Hicks, “the utility
will be maximised when the marginal unit
of expenditure in each direction brings in
the same increments of utility.”
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4. “The house holds maximizing the utility will so
allocate the expenditure between commodities that
the utility of the last penny spent on each item is
equal.”
Formula
MUA/PA = MUB/PB = ….= MUN/PN
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5. 1. MARGINAL UTILITY OF MONEY REMAINS
CONSTANT.
2. CONSTANT PURCHASING POWER OF THE MONEY
3. CONSUMER IS RATIONAL.
4. NO CHANGE IN PREFERENCE, NATURE,TASTE &
FASHION OF CONSUMERS
5. MEASUREMENT OF UTILITY
6. LAW OF MARGINAL UTILITY APPLIES
7. SUITABLE UNITS
8. NO CLOSE SUBSTITUTE AVAILABLE 5

6. We assume that:
1. The consumer has Rs.5 with him.
2. He has to spend his income on two goods
A and B.
3. The price of each good is Rs.1 per unit.
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7. Units of
money
MU of A MU of B
1 12 10
2 10 8
3 8 6
4 6 4
5 3 2
Total 39 30
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8. UNITS OF
MONEY
NAME OF THE
COMMODITY
UTILITY (In
Units)
1 1A 12
2 1B 10
3 2A 10
4 2B 8
5 3A 8
5 Rs. 3A , 2B 48
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9. 1. IGNORANCE OF CONSUMERS
2. CUSTOMS AND FASHIONS
3. UTILITY IS IMMEASURABLE.
4. MARGINAL UTILITY OF MONEY
5. NON-AVAILABILITY OF GOODS
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10. 6. CHANGE IN PRICE OF GOODS
7. COMPLEMENTARY GOODS
8. INDIVISIBLE GOODS
9. CONSUMERS ARE NOT RATIONAL
10. INDEFINITENESS OF THE BUDGET
PERIOD
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11. 1. CONSUMPTION
2. PRODUCTION
3. EXCHANGE
4. DISTRIBUTION
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12. Law of Equal-Marginal Utility
Consumer’s Equilibrium under Marshellian analysis
Condition for consumer equilibrium
MUx
/Px = MUy
/Py =MUm
Apple (A) MUA MU/PA Banana (B) MUB MU/PB
1 60 20 1 60 12
2 48 16 2 55 11
3 42 14 3 50 10
4 36 12 4 45 9
5 30 10 5 40 8
6 24 8 6 35 7
7 18 6 7 20 4
Price of A = 3 Price of B =5
MU of Money = 10
Expenditure = 5x Price of A + 3 xPrice B
= 5 x 3 + 3 X 5 =
Rs.30
Apple – 5 Rate (15 Rupees)
Banana – 3 Rate (15 Rupees)
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13. Law of Equal-Marginal Utility
Consumer’s Equilibrium under Marshellian analysis
1 2 3 4 5 6 7 8 99 8 7 6 5 4 3 2 1
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