As Human wants are unlimited and the means to satisfy his wants are limited. What will he do?

As we know human wants and desires are unlimited but to satisfy those wants the means are limited, therefore first he will pick the most important want and satisfy with the resources he have.

Every consumer will try to make the best use of the money and derive the maximum satisfaction.

The satisfaction derived from the last rupee spent on each commodity should give him the ultimate satisfaction.

This theory in economics called as “LAW OF EQUI MARGINAL UTILITY”. And also called as law of maximum satisfaction.

To maximize utility, consumer allocate their incomes among goods so as to equate the marginal utilities per rupee(Mu/P) of the expenditure on the last unit of good purchased. This is also referred to as the consumer equilibrium.

Spending should be allocated across goods so that the marginal utility on the last rupee spent is the same for each good.

Let us see the example and understand better

Suppose chocolates and sweets are the two goods which you want to purchase.

You have 30 rupees to spend

Let us spend 20 rupees on chocolates and rest on sweets. The utility got from buying chocolates is higher, so the person will buy more chocolates and less sweets.