Economics is the study of how societies use their scarce resources to satisfy their unlimited wants. One of the main principles of economics is the law of equi marginal utility. This law was first discovered by 19th century economists, including William Stanley Jevons and Carl Menger. The law of equi marginal utility states that when making decisions, people should allocate their resources in such a way that the last unit of a good or service provides the same amount of utility as the next unit. In other words, one should allocate resources in such a way that the marginal utility of each resource is the same.
What is Marginal Utility?
Before understanding the law of equi marginal utility, it is important to understand the concept of marginal utility. Marginal utility is the additional satisfaction a person receives from consuming one additional unit of a good or service. For example, if a person consumes one hamburger, the additional satisfaction that person receives is the marginal utility of the hamburger. The marginal utility of a good or service can vary depending on the amount of the good or service that a person has already consumed.
The Law of Diminishing Marginal Utility
The law of equi marginal utility is based on the law of diminishing marginal utility. This law states that as a person consumes more of a good or service, the marginal utility of the good or service declines. For example, if a person eats one hamburger, the marginal utility of the hamburger is high. However, if the person eats a second hamburger, the marginal utility of the hamburger is lower than the marginal utility of the first hamburger. This is because the person has already satisfied some of their desire for hamburgers by eating the first hamburger.
Application of the Law of Equi Marginal Utility
The law of equi marginal utility has many applications in economics. One of the most important applications is in the theory of consumer behavior. According to the law of equi marginal utility, when making decisions about how to allocate resources, consumers should allocate their resources in such a way that the marginal utility of each resource is the same. In other words, if a consumer has a limited amount of money, they should spend their money in such a way that the last dollar spent brings the same amount of utility as the next dollar spent.
The Implications of the Law of Equi Marginal Utility
The law of equi marginal utility has several implications for economic theory. First, it implies that consumers are rational decision makers. This means that when making decisions about how to allocate resources, consumers should consider the marginal utility of each resource. Second, it implies that the most efficient allocation of resources is one in which the marginal utility of each resource is the same. This means that if a consumer is faced with a limited amount of resources, they should allocate their resources in such a way that the last unit of a good or service brings the same amount of utility as the next unit.
Criticisms of the Law of Equi Marginal Utility
Although the law of equi marginal utility has been widely accepted by economists, it has also been criticized by some economists. One of the main criticisms is that the law of equi marginal utility assumes that consumers are rational decision makers. Some economists argue that consumers are not always rational and that their decisions may be influenced by emotions or other non-rational factors.
Conclusion
The law of equi marginal utility is an important principle of economics that states that when making decisions about how to allocate resources, people should allocate their resources in such a way that the marginal utility of each resource is the same. This law has many implications for economic theory and has been widely accepted by economists. However, it has also been criticized by some economists who argue that the law fails to account for the fact that consumers are not always rational decision makers.
