It is, thus, clear that the loss in satisfaction is greater than the gain in satisfaction by spending MN amount of money more on X and the same amount of money less on Y. Thus, if a consumer spends MN amount of money more on commodity X and therefore MM amount of money less on commodity Y, his gain in satisfaction will be equal to MEHM and his loss in satisfaction will be equal to MEHN. This represents consumer’s equilibrium in respect of the expenditure of a given amount of money income OO” on the two commodities X and Y and in this position consumer will be getting maximum satisfaction from the given amount of money income, now, it can be proved that if we spend a little more amount on one commodity and the same amount of money less on the other, the satisfaction will decline. ![]() ![]() Thus, when OM amount of money is being spent on commodity x and the remaining O’M is being spent on commodity Y, marginal utility of a rupee spent on these two commodities in the same. That is, at point E marginal utility of rupee spent on commodity X (MU) is equal to the marginal utility of rupee spent on commodity Y (MU y). It will be seen from this figure that the two curves AB and CD showing the diminishing marginal utility of rupees spent on X and Y respectively, intersect at point E. It is worth noting that we read the number of rupees spend on commodity X from left to right and read the number of rupees spent on commodity y from right to left. CD shows the marginal utilities of successive rupees spent on commodity Y with O as the origin. In this figure, curve AB shows the marginal utilities of successive rupees spent on commodity X with O as the point of origin. Suppose a consumer has got OO amount of money income which he has to spend on two goods X and Y. The law of equi-marginal utility can be graphically illustrated in another way also. Therefore, consumer will be in equilibrium when he is buying 5 units of good X and 3 units of goods Y and will be spending (Rs. By looking at the table it is clear that MU Z/P X is equal to 6 units when the consumer purchases 5 units of goods X and MU Z/P X is equal to 6 units when he buys 3 units of goods y. Suppose, the consumer has Rupees 19 with him to spend on the two goods X and Y. With a given expenditure a rupee has a certain utility for him: this utility is the marginal utility of money by him. This is determined by the size of his money expenditure. The question is how far a consumer goes on purchasing the goods he wants. The consumer will continue Substituting goods X for goods Y till MUy/ P Z becomes equal to MU y / P Z When MU Z/ P Z becomes equal to the Mu y/ P Zy consumer will be in equilibrium.īut the equality of MU Z / P Z with MU y/P Z can be achieved not only at one level but at different levels O expenditure. ![]() As a result of this substitution the marginal utility of goods Y will rise. Now, if MUz / P Z and MUy/ P Z are not equal and MUz / P Z -is greater than MUz / P Z then the consumer will substitute goods X for goods Y. That is, consumer is in equilibrium in respect of the purchases of two goods X and Y when The law of equi-marginal utility can, therefore, be stated thus: the consumer will spend his money income on different goods in such a way that marginal utility of each good is proportional to its price. Where MU e is marginal utility of money expenditure and MU z is the marginal utility of the goods X and P z is the price of X.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |