Law of Equimarginal Utility

Law of Equimarginal Utility - The DMU principle is...

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Law of Equimarginal Utility: The principle of diminishing marginal utility brings about the law of demand simply by equating market price with marginal utility . If a consumer stops consuming earlier and purchases a unit less than the equilibrium units, then his marginal utility will exceed market price. He has therefore not yet maximized his utility. If he purchases more units than the quantity at equilibrium, then his marginal utility will fall short of the market price and his total utility will be smaller than that at equilibrium, as compared to his total expenditure.
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Unformatted text preview: The DMU principle is applicable only in the case of a single commodity. In reality a consumer has to purchase multiple goods. He has therefore to compare the marginal utilities of all such goods that he purchases with the relative prices of these goods. With the limited income that the consumer possesses he may not be able to reach the point of equality between marginal utility and price of each commodity. He may have to stop before such a point is reached and start spending on some other good....
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This note was uploaded on 11/26/2011 for the course ECONOMIC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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