Question

Write short notes on:

1. Equi-marginal utility

2. Paradox of value

3. Form utility

Answer 1

1) Equi-marginal utility implies that a consumer allocates his expenditure on various commodities in such a manner that the utility derived from each additional unit of the rupee spent on each of the commodities is equal. Algebraically, this is represented by the following equation:

$\frac{M{U}_x}{P_x}=\frac{M{U}_y}{P_y}=\dots \frac{M{U}_n}{P_n}=M{U}_m$

Where MU_x, MU_y, MU_n are the marginal utilities derived from the goods X, Y and N, respectively; P_x, P_y, P_n are the prices of the goods X, Y and N, respectively; and MU_m is the marginal utility of money.

2) Paradox of value refers to the difference between the value in use of a commodity and the value in exchange. This paradox states that a commodity that has a high use value may have a low exchange value (in terms of price). For instance, water, which has a high use value commands a low price in the market, i.e. it has a low exchange value. On the other hand, diamonds that have a low use value have high very high exchange value. Thus, there is a disparity between the use value and exchange value.

3) Form utility is the utility that is derived by changing the physical properties of a product. As a good changes shape or structure, form utility increase. For instance, when a log of wood is changed in furniture, the utility derived from it increases. Similarly, when clay is changed in pottery the utility increases.