EQUI-MARGINAL PRINCIPLE:
To increase the utility, consumers allocate their income among goods so as to equate the marginal utility per rupee (MU/P) of the expenditure on the last unit of each good purchased. This is also referred to as the consumer equilibrium.
That means marginal utility of one product divided by price of one product is equal to marginal utility of another product divided by price of another product and so on..
Example: We can take gas cylinder and movie tickets.This can be shown as
MU gas / P gas = MU movie / P movie = - - - - - MU x / P x
So that the spending should be allocated across goods so that the marginal utility spent on the last rupee is the same for each group.
To increase the utility, consumers allocate their income among goods so as to equate the marginal utility per rupee (MU/P) of the expenditure on the last unit of each good purchased. This is also referred to as the consumer equilibrium.
That means marginal utility of one product divided by price of one product is equal to marginal utility of another product divided by price of another product and so on..
Example: We can take gas cylinder and movie tickets.This can be shown as
MU gas / P gas = MU movie / P movie = - - - - - MU x / P x
So that the spending should be allocated across goods so that the marginal utility spent on the last rupee is the same for each group.
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