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

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Solution

  • 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.


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