Question

The Law of Diminishing Marginal Utility and The Law of Equi- Marginal Utility.

Answer 1

• Law of Diminishing Marginal Utility (DMU) states that as we consume more and more units of a commodity, the utility derived from each successive unit goes on decreasing.
  
• People spend their income on various goods because consuming more and more of anyone good reduces the marginal satisfaction obtained from further consumption of the same good.
• The law of equi-marginal utility is an extension of the law of DMU. It states that with the limited that a person has, he aims to spend it on different commodities and earn maximum and equal satisfaction from them.
  
• He should such a combination of goods so that the utility derived from the last unit of the goods are the same.