Limitations of the Equi-Marginal Utility Law
The law of equi-marginal utility bristles with the following difficulties.
The theory is weakened by the fact that many commodities like a car, a house etc. are indivisible. In the case of indivisible goods, the law is not applicable.
The theory is based on the assumption that the marginal utility of money is constant. But that is not really so.
Marshall states that the price a consumer is willing to pay for a commodity is equal to its marginal utility. But modern economists argue that, if two persons are paying an equal price for given commodity, it does not mean that both are getting the same level of utility. Thus utility is a subjective concept, which cannot be measured, in quantitative terms.
This law assumes that commodities are independent and therefore their marginal utilities are also independent. But in real life commodities are either substitutes or complements. Their utilities are therefore interdependent.
According to Prof. K.E. Boulding, indefinite budget period is another difficulty in the law. Normally the budget period is assumed to be a year. But there are certain commodities which are available in several succeeding accounting periods. It is difficult to calculate marginal utility for such commodities.
In conclusion, we may say all prudent and rational persons are expected to act upon the law consciously or unconsciously. As Chapman puts it,
'We are not, of course compelled to distribute our incomes according to the law of substitution or equi-marginal expenditure, as a stone thrown into the air is compelled, in a sense to fall back to the earth, but as a matter of fact, we do in a certain rough fashion, because we are reasonable.'
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