Saturday, August 11, 2018

Eqi-marginal principle--meaning and definition with example

The principle of eqi-marginal utility explains the consumer behavior in which consumer allocate their incomes among goods and services so as to equate marginal utilities per rupee (MU/P) of the expenditure on the last unit of each good purchased will be equal.This is also refer to consumer equilibrium.
MUx/Px=MUy/Py
Definition:
According to Marshall “if a person has a thing which he can put to several uses, he will distribute it among these users in such a way that it has the same marginal utility in all.”
According to Lipsey “the consumer maximising his utility wilt so allocated expenditure between commodities that the utility derived from the last unit of money spent on each is equal.”
Example:
A girl purchase cornflakes and oats whose price are Pc and Po respectively. She purchase more of cornflakes his MUc declines which leads to MUo rises. Only at the margin the last unit of money spent on cornflakes has same utility as the last unit of money spent on oats and the person satisfies.

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