IMPORTANCE OR BENEFITS OF THE LAW OF EQUI-MARGINAL UTILITY
Law of Equi-Marginal Utility has an important place in economics. Even though it is highly criticized, its importance cannot be ignored. This applies in the every field of economics, which is clear from the following
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.
INTRODUCTION OF LAW OF EQUI-MARGINAL UTILITY
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.
Measurement of Utility
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.
At a given time the overall utility derived from the consumption of all units of a commodity is called Total Utility.
Definition of Marginal Utility
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.
Meaning of Utility
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‘.