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The importance of the equi marginal utility is that it is used as a basis for the progressive taxation. The other importance is that it is used in the redistribution of income.
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What is the equi-marginal principle?
We will use the utility theory to explain consumer demand and to understand the nature of demand curves. For this purpose, we need to know the condition under which I, as a consumer, am most satisfied with my market basket of consumption goods. We say that a consumer attempts to maximize his or her utility, which means that the consumer chooses the most preferred of goods from what is available. Can we see what a rule for such an optimal decision would be? Certainly I would not expect that the last egg I am buying bring exactly the same marginal utility as the last pair of shoes I am buying, for shoes cost much more per unit than eggs. A more sensible rule would be: If good A costs twice as much as good B, then buy good A only when its marginal utility is at least twice as great as good B's marginal utility. This leads to the equimarginal principle that I should arrange my consumption so that every single good is bringing me the same marginal utility per dollar of expenditure. In such a situation, I am attaining maximum satisfaction or utility from my purchases. This is clear concept of equimarginal principle.
How the slope of the demand curve can be explained by the principle of marginal utility?
The demand curve is negatively sloped because it is based on the principle of marginal utility and this utility decreases as consumption increases. The demand price which depends on the marginal utility of a good also declines as consumption increases, so quantity and price are inversely related, leading to the negative curve and the law of demand.
Why are profit maximize when marginal revenue is equal to marginal cost?
Profits are maximized when marginal costs equals marginal revenue because fixed costs are now spread over a larger amount of revenue. This means that total cost per unit declines and profits increase. Another way to say this is that this is the effect of scale. When marginal revenue equals marginal costs, in a growing revenue situation, you gain economies of scale and higher profits.
What is the difference between marginal benefits and marginal costs?
The term marginal cost refers to the oppurtunity cost associated with producing one more additional unit of a good. Opportunity cost is a critical concept to economics - it refers to the value of the highest value alternative opportunity. For example, in examining the marginal cost of producing one more bushel of wheat, that number could be expressed as the dollar value of corn or other goods that could be produced in lieu of more wheat. Marginal benefit refers to what people are willing to give up in order to obtain one more unit of a good, while marginal cost refers to the value of what is given up in order to produce that additional unit. Additional units of a good should be produced as long as marginal benefit exceeds marginal cost. It would be inefficient to produce goods when the marginal benefit is less than the marginal cost. Therefore an efficient level of product is achieved when marginal benefit is equal to marginal cost.
Describe how the slope of the demand curve can be explained by the principle of diminishing marginal utility?
People only need so much of one thing. The lower the price the more demand you will have for the product, until the customer does not want anymore. At that time it will not matter what the price is, they will not purchase any more.
What is the difference between equi-marginal utility and diminishing marginal utility?
What is the difference between equi-marginal utility and diminishing marginal utility?Read more:What_is_the_difference_between_equi-marginal_utility_and_diminishing_marginal_utility
What is Law of Equi-Marginal Utility?
Law of Equi-Marginal Utility explains how a consumer can get maximum satisfaction out of his expenditure on different goods.
Expain law of equi marginal utility or law of substitution with graph and its assumption?
law of equi marginal theory by suhail bba part 1salu
What is law of equi marginal utility and explain with the help of schedule and diagram?
Law of equi marginal utility refers " How a Consumer get Maximum Satisfaction From Various Commodities " The Last Unit \ Penny of all the Goods Are Equal .
Law of equal marginal utility?
The Law of Equi-Marginal Utility is an extension to the law of diminishing marginal utility. The principle of equi-marginal utility explains the behavior of a consumer in distributing his limited income among various goods and services. This law states that how a consumer allocates his money income between various goods so as to obtain maximum satisfaction. The principle of equi-marginal utility is based on the following assumptions: (a) The wants of a consumer remain unchanged. (c) The prices of all goods are given and known to a consumer. (d) He is one of the many buyers in the sense that he is powerless to alter the market price. (e) He can spend his income in small amounts. (f) He acts rationally in the sense that he want maximum satisfaction (g) Utility is measured cardinally. This means that utility, or use of a good, can be expressed in terms of "units" or "utils". This utility is not only comparable but also quantifiable. Suppose there are two goods 'x' and 'y' on which the consumer has to spend his given income. The consumer's behavior is based on two factors: (a) Marginal Utilities of goods 'x' and 'y' by economist Aamir suhail Maitlo from shah abdul latif univercity .email address is aamirsuhail026@gmail.com
When total utility is at its maximum where is marginal utility?
marginal utility is zero
When total utility increases marginal utility is?
marginal utility decreases
Law of equi marginal utility?
Definition: prof. Alfred Marshall has stated the law as follows- a person has a thing which can be put to several uses he will distribute it between these uses in such a way that it has the same marginal utility in all. Explanation: In other words he will substitutes a commodity of greater utility for a commodity of lesser utility . a person derives maximum satisfaction, when the marginal utilities of all the commodities purchased by him are equalised. that is why the principle is also known as 'Doctrine of Maximum Satisfaction.
What is marginal utility. why marginal utility diminishing. give atleast 10 examples where the marginal utility have not diminising?
Life-saving procedures
The Equi-Marginal Principle can be applied to both consumption as well as production Discuss this statement with the help of an example?
The Equi-Marginal Principle can be applied to both consumption as well as production Discuss this statement with the help of an example?
Equi marginal utility?
Equimarginal utility principle states that to maximise the utility, a rational consumer spends his budget on consuming the amount that gives him the highest marginal utility per dollar for each commodity. For example,say Tom has a budget of $5. He has two commodities to choose from- a pen and an erazer. Let each commodity cost him the same amount of money- $1.Now marginal utility for each is:Number Marginal Utility of pen/dollar Marginal Uitlity of erazer/dollar1 11 92 10 73 7 54 4 3According to the principle or law of equi marginal utility, Tom's (a rational consumer) tendancy will be to buy a combination of pen and erazer that will give him maximum satisfaction, until his budget is used up entirely.In this case, Tom's budget is $5. So, he will tend to buy 3 pens and 2 erazers.Now, suppose, that the two goods (pen and erzer) don't cost the same amount. Say, the pen costs $2 instead of one. In that case, the combination will be different.Number Marginal Utility of pen/dollar Marginal Utility of erazer/dollar1 5 1/2 92 5 73 3 1/2 54 2 3In this case, Tom will have the combination of 2 pens and 3 erazers.Mathematically,the principle is like this:Marginal utility of A/ price of A = Marginal Utility of B/Price of BIf they are not equal in any case, they should be maximum MU for both goods within the budget line.
How does an individual or household benefit from the law of diminishing marginal utility?
what is it marginal utility
