Friday, August 31, 2012

Limitations Of Law Of Equi Marginal Utility

Limitations Of Law Of Equi Marginal Utility
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5
Limitations of the Law of Equi marginal Utility

The Law of Equi - marginal utility is a mere statement of tendency. The actual expenditures of the consumer may not conform to this Law of Equi marginal Utility because of the following reasons.
Following are some imoportant Limitations of the Law of Equi marginal Utility:

1)  Careful Calculations:
This law of Equi marginal Utility involves very careful calculations of the expected satisfaction and its comparison with the amount of money spend on various goods. It also involves a careful calculation of the utility derived by spending the same amount in some other direction. In actual practice there is not much conscious calculation and careful weighing of utilities as much of our expenditure is governed by habits and customs.

2)  Rational Behavior Of Customer:
It can not be expected of the consumer to act rationally. Only in case of big expenditure a rational consumer goes through certain thinking and his expenditure may roughly conform to this principle. This Law of Equi marginal Utility however, does not apply in case of small purchases.

3)  Ignorance Of Consumer
Ignorance of the consumer imposes another limitation. The consumer may not be aware of the other useful alternatives. This makes this Law of Equi marginal Utility inoperative.

4)  Customs And Fashions:
Peoples are sometimes slaves of customs or fashions, and are incapable of rational consumption. They are thus deprived of having maximum utility.

5)  Budget Period:
Another limitation arises from the fact that there is no definite budget period in case of individual.

6)  Indivisibility Of Commodities:
Indivisibility of certain commodities also makes the operation of this Law of Equi marginal Utility difficult.

7)  This principle is based on the ordinal measurement of utility and the constancy of the marginal utility of the money. These assumptions have been discarded by modern economists.


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