Equi-Marginal Utility: Importance of the Law

Importance of Law of Equi-Marginal Utility

The Law of Equi-Marginal Utility has an important place in economics. The importance of concept cannot be ignored even though it is highly criticized. This applies in every field of economics, which is clear from the following

1. In the Field of Consumption

   This law is very important in the field of consumption because every consumer wants to get maximum satisfaction from his limited income. Along with those goods which consumers are consuming presently; they also keep goods for future consumption, so that they can get equal utility at both times.

2. In the Field of Production

   Usually, the producer has capital in a limited quantity but he wants to get maximum profit from his investment (Capital) and it is possible only when the production cost would be less and production would be more. So, the producer uses the cheap and more production-giving means (factors of production), in the place of expensive means, until marginal productivity of both the means becomes equal. In this way, the law of Equi-marginal Utility is also applicable in the field of production.

3. In the Field of Exchange

   The main basis of exchange, is this law, because, in exchange, goods are purchased and told through money, and in every exchange, we compare the utility receiving with utility, giving in return. We keep trying to exchange up to that extent unless the utility giving becomes equal, to the utility received. Thus, law equi-marginal Utility is the basis of exchange.

4. In the Field of Distribution

   In the field of distribution, this law is helpful in distributing the remuneration in factors of production. National income is distributed in Land, Labour, Capital, and Organisation. The share of factors of production is determined according to their marginal productivity. Hence, the producer uses that particular factor more; the marginal productivity of which is more, than its remuneration.

5. In the Field of Public Finance

   In the field of public finance also, this law has very important. The Principle of Maximum Social Advantage is also based on the Law of Equi-marginal Utility Government charges more tax from people with high income and charges less tax from people with low income and spends that income in such a way that the people whose income is below the poverty threshold can get more benefit in comparison to high-income generating individuals.

CONCLUSION

The Law of equi-marginal Utility is an important basic law of Economics and it is used at a wide level. According to Marshall

This law is applicable in almost every field of economic research.