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Meaning 
It is the second important law of the utility analysis. 
This law was first propounded by Gossen. It is known 
as “Gossen’s Second Law” 
This law points out how a consumer can get maximum 
satisfaction out of given expenditure on different 
goods. 
The law states that in order to get maximum satisfaction, 
a consumer should spend his limited income on 
different commodities in such a way that the last rupee 
spent on each commodity yields him equal marginal 
utility.
Definition 
Dr. Marshall, “If a persons has a thing which he can put 
to several uses, he will distribute it among these uses 
in such a way, that he has the same marginal utility in 
all.” 
This law can be explained as 
1. Traditional statement 
2.Modern statement
1. Traditional Statement of the law 
According to traditional statement consumer will 
spend his money income in such a way that last rupee 
spend on each product will give him equal 
Satisfaction. 
MU1 = MU2 = …………….Mun
Conditions 
 There must be two or more commodities 
 What ever marginally utility he gets from both 
commody must be equal 
 He must spent all the income
Explanation 
 Income= Rs 100 
Price of Apples =20, Banana = Rs. 10 
Unit MU of 
Apples 
MU of 
Banana 
1 10 12 
2 8 10 
3 6 8 
4 4 6 
5 2 3 
1*20=20 
2*10=30 
50rs spent 
3*20=60 
4*10=40 
100rs spent
2. Modern Statement 
Modern economist also call it as the ‘ Law of 
Proportionality’. 
According to them a person gets maximum satisfaction 
when the weighted marginal utilities are equal. In 
other words, when marginal utilities of one 
commodity divided by its price and the marginal 
utility of the other commodity divided by its price are 
equal. 
MUa MUb MUc 
Pa Pb Pc 
-------- = ------------ = -----------
Total money=Rs24 
Price of X= Rs 2 
Price of Y= Rs 3 
MU of x & y MU of money 
Expenditure 
Units MUx MUy MUx/Px MUy/Py 
1 20 24 10 8 
2 18 21 9 7 
3 16 18 8 6 
4 14 15 7 5 
5 12 9 6 3 
6 10 3 5 1 
In Modern method,calculating marginal utility with respect to 
price
Y 
10 
9 
8 
7 
6 
5 
4 
3 
O 
Y 
MUx/Px 
1 2 3 4 5 6 X O 1 2 3 4 5 6 X 
Quantity of X Quantity of Y 
MUy/Py 
Consumer’s choice under Law of Equi -marginal utility
Y 
10 
9 
8 
7 
6 
5 
4 
3 
O 
Gain 
1 2 3 4 5 6 X O 1 2 3 4 5 6 X 
Quatity of X Quantity of Y
Importance of the law 
 Consumption 
 Production 
 Exchange 
 Price discrimination 
 Distribution 
 Public finance 
 International trade 
 Distribution of assets 
 Distribution of time 
 Saving and investment
Criticism 
 Non availability of goods 
 Influence of fashion, customs and habits 
 Tastes and preferences are not constant 
 Indivisibility of goods 
 Change in income and price 
 Complementary goods 
 Marginal utility of money does not remain constant
Thank u

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The law of equi marginal utility

  • 1.
  • 2. Meaning It is the second important law of the utility analysis. This law was first propounded by Gossen. It is known as “Gossen’s Second Law” This law points out how a consumer can get maximum satisfaction out of given expenditure on different goods. The law states that in order to get maximum satisfaction, a consumer should spend his limited income on different commodities in such a way that the last rupee spent on each commodity yields him equal marginal utility.
  • 3. Definition Dr. Marshall, “If a persons has a thing which he can put to several uses, he will distribute it among these uses in such a way, that he has the same marginal utility in all.” This law can be explained as 1. Traditional statement 2.Modern statement
  • 4. 1. Traditional Statement of the law According to traditional statement consumer will spend his money income in such a way that last rupee spend on each product will give him equal Satisfaction. MU1 = MU2 = …………….Mun
  • 5. Conditions  There must be two or more commodities  What ever marginally utility he gets from both commody must be equal  He must spent all the income
  • 6. Explanation  Income= Rs 100 Price of Apples =20, Banana = Rs. 10 Unit MU of Apples MU of Banana 1 10 12 2 8 10 3 6 8 4 4 6 5 2 3 1*20=20 2*10=30 50rs spent 3*20=60 4*10=40 100rs spent
  • 7. 2. Modern Statement Modern economist also call it as the ‘ Law of Proportionality’. According to them a person gets maximum satisfaction when the weighted marginal utilities are equal. In other words, when marginal utilities of one commodity divided by its price and the marginal utility of the other commodity divided by its price are equal. MUa MUb MUc Pa Pb Pc -------- = ------------ = -----------
  • 8. Total money=Rs24 Price of X= Rs 2 Price of Y= Rs 3 MU of x & y MU of money Expenditure Units MUx MUy MUx/Px MUy/Py 1 20 24 10 8 2 18 21 9 7 3 16 18 8 6 4 14 15 7 5 5 12 9 6 3 6 10 3 5 1 In Modern method,calculating marginal utility with respect to price
  • 9. Y 10 9 8 7 6 5 4 3 O Y MUx/Px 1 2 3 4 5 6 X O 1 2 3 4 5 6 X Quantity of X Quantity of Y MUy/Py Consumer’s choice under Law of Equi -marginal utility
  • 10. Y 10 9 8 7 6 5 4 3 O Gain 1 2 3 4 5 6 X O 1 2 3 4 5 6 X Quatity of X Quantity of Y
  • 11. Importance of the law  Consumption  Production  Exchange  Price discrimination  Distribution  Public finance  International trade  Distribution of assets  Distribution of time  Saving and investment
  • 12. Criticism  Non availability of goods  Influence of fashion, customs and habits  Tastes and preferences are not constant  Indivisibility of goods  Change in income and price  Complementary goods  Marginal utility of money does not remain constant

Editor's Notes

  1. The fundamental problem in an economy is that there are unlimited human wants. However, there are no adequate resources to satisfy all human wants. Hence, a rational individual tries to optimize the available scarce resources in order to attain maximum satisfaction. An individual’s attempt to optimize the available scare resources is known as consumer’s behavior. The law of equi-marginal utility explains such consumer’s behavior when the consumer has limited resources and unlimited wants. Because of this reason, the law of equi-marginal utility is further referred to as the law of maximum satisfaction, the principle of income allocation, the law of economy in expenditure or the law of substitution.
  2. In Modern method,calculating marginal utility with respect to price