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In Order To Maximize Utility A Consumer Should Allocate Money Income So That-

I'm not certain though..Table-Marginal Utility of Money Expenditure:.Suppose there are only two goods X and Y on which a consumer has to spend a given income.I'm not certain though..If our consumer spends OC on good X and O’C on good Y then MUX/PX will exceed MUY/ PY by the distance AB.We have drawn marginal utility curves for goods X and Y in Fig 2.12(a) and (b)..

Or MUX/MUY = PX/PY.Q#1: C) all equilibrium points on an indifference map (though strangely worded question)..MUX/PX= MUY/PY.It will be noticed that with this rearrangement of purchases of the two goods, the loss in utility ABCH exceeds gain in utility KEFL..It is a real valued function with domain being the set of all commodity bundles, or.If they are commodities, like diamonds and jewels, or hobby goods like stamps, coins or paintings, the law does not apply.

You can go only as far as your budget constraint allows.most market demand curves slope downward soley because of the substitution effect.To maximize utility with a given income constraint, a consumer must chose products to maximize utility.But it has been pointed out that the ordinary consumers are not so rational and calculating.As a result of this, the utilities derived from various goods are interdependent, that is, they depend upon each other.The rule can also be expressed as the ratio of the prices of the two goods should be equal to the ratio of the marginal utilities.

There was an error submitting your subscription.Marshall derived the demand curves for goods from their utility functions..(8) Marginal utility analysis assumes too much and explains too little:.Cardinal utility analysis of demand is based upon certain important assumptions.This familiar behaviour of marginal utility has been stated in the Law of Diminishing Marginal Utility according to which marginal utility of a good diminishes as an individual consumes more units of a good.Any other allocation of the last dollar shall give less total utility to the consumer..

In the absence of interper­sonal comparisons, the social welfare of the community is simply a heterogeneous collection of individual welfares.if you have 100 pairs then another pair does not do much for you so the utility of that pair is low.MUx / Px = MUy / Py = MUm.Thus, the consumer will be in equilibrium when the following equation holds good:.

MUm = MUx / Px.It is, therefore, advisable that their surplus wealth be acquired by the state and distributed to the poor who possess high marginal utility for money..c.Total utility derived from each product consumed is the same..This Pareto optimum point means that there is no movement away from point Ex, in terms of reallocation of resources..It should be noted that though each consumers consumes the same quantity, they do not pay the same price..However, it is worth noting that we cannot compare utility across consumers.


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