Question

What are the limitations of equi-marginal utility?

Answer 1

Answer:

i) Ignorance:

If the consumer is ignorant or blindly follows custom or fashion, he will make a wrong use of money. On account of his ignorance he may not know where the utility is greater and where less. Thus, ignorance may prevent him from making a rational use of money. Hence, his satisfaction may not be the maximum, because the marginal utilities from his expenditure can­not be equalised due to ignorance.

(ii) Inefficient Organisation:

In the same manner, an incompetent organ­iser of business will fail to achieve the best results from the units of land, labour and capital that he employs. This is so because he may not be able to divert expenditure to more profitable channels from the less profitable ones.

(iii) Unlimited Resources:

The law has obviously no place where this resources are unlimited, as for example, is the case with the free gifts of nature. In such cases, there is no need of diverting expenditure from one direction to another.

Explanation:

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