CRITICISMS, LIMITATIONS OR EXCEPTIONS OF LAW OF EQUI-MARGINAL UTILITY
Following are the main reasons for the criticism of the Law of Equi-marginal utility by H. H. Gossen. Although, it is a basic law of economics and consumers knowingly or unknowingly are compelled, to follow this law. This law is applicable in every field of economic analysis. Continue reading →
We know that wants of every man are unlimited. Wants arise again and again but man has limited means (income) to fulfill his wants and means have , alternative uses. Thus, man always face problem of distribution of limited means of alternative uses, on his wants; so that, he may get maximum satisfaction (or utility). Law of Equi-Marginal Utility presents the solution of this problem. This law states that if a person, wishes to get maximum satisfaction from his income, he should spend his income on different items, in such a way that the utility of last unit of money spent on each commodity, should be equal or almost equal. This law of consumption was propounded by a French Economist, H. H. Gossen in 1854 and it is also known as the Second Law of Gossen. Continue reading →
Utility is a Psychological and Personal Concept. There is a deference of opinion, whether measurement of utility can be done or not. Followings are the two approaches are prevalent in this regard. Continue reading →
Marginal Utility is the utility which is derived from the consumption of an additional unit of a commodity. In other words, it is the addition to total utility, resulting from adding one unit to the consumption of a commodity.
Example : Ram consumes 6 ice creams at a time. In this case, 6 ice creams will be the marginal unit and utility derived by him from adding one unit to the consumption of a commodity.
Utility means the power that satisfies any want. It is such an internal quality; which is found in all commodities desired by a person. The quality (power or capability) of commodity which satisfies the human want; directly or indirectly is called Utility. Those commodities, which have wants satisfying power are called ‘Useful Commodities‘. Continue reading →