Answer to Question #46602 in Microeconomics for Rahul Kumar

Question

Explain the consumer’s equilibrium in terms Marshallian Law of equi-marginal utility. Give
illustrations in support of your answer.

Answer 1

The Law of Equi-Marginal Utility is an extension to the law of diminishing marginal utility. The principle of equi-marginal utility explains the behavior of a consumer in distributing his limited income among various goods and services. This law states that how a consumer allocates his money income between various goods so as to obtain maximum satisfaction.
The consumer is in equilibrium position when marginal utility of money expenditure on each good is the same.
The Law of Equi-Marginal Utility states that the consumer will distribute his money income in such a way that the utility derived from the last rupee spent on each good is equal.
The consumer will spend his money income in such a way that marginal utility of each good is proportional to its rupee.