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Unit-3: Consumer Theory–Cardinal Utility Analysis

2. Consumer is not Calculating: The law is based on wrong assumption that while spending his income Notes
a consumer constantly calculates the utility derived by him out of each rupee spent. Another wrong
assumption of this law is that consumer goes on comparing the marginal utilities of the last rupee
spent on different commodities. In actual life one hardly comes across such a calculating consumer.
So the application of this law is practically difficult.
3. Non-availability of Goods: If goods giving more utility are not available in the market, the
consumption will have to consume goods yielding less utility. If there is non availability of cooking
gas in the market then the consumer will go for other options either coal or kerosene oil. If the utility
of the later, coal or kerosene oil is less then the consumer will not get the maximum satisfaction.
4. Ignorance of the Consumer: Consumer is ignorant about concerning consumption. He is ignorant
about right price of goods, less expensive substitute of the goods and of the different uses of goods.
Due to these factors, the consumer fails to spend his income in a manner that may yield him maximum
satisfaction.
5. Indivisibility of Goods: The law is not applicable to those goods which cannot be divided into small
parts, Things like car, Television set, scooter have to be bought at least in one unit. To equalize the
marginal utility of different goods , if we are thinking to buy one unit of above goods, then we may
not be able to buy the additional unit. So we can say that this law does not apply to invisible goods.
6. No definite budget period: Another limitation of this law is that the budget period of consumer is
not definite. A consumer has to spend his income of different uses within a definite period of time
which is also known as budget periods and that budget period can be a month or a year. Goods like
TV Set, refrigerator are bought in one budget period, but they continue to yield utility over many
budget periods. Marginal utility of those items such as TV set, refrigerator cannot be compared with
those commodities which are bought and consumed in the same period.
7. Cardinal measurement of utility is not possible: Utility cannot be measured in cardinal number
system. How can a consumer say he would get 12 units of utility from first mango and 10 units from
second. Unless the marginal utility is estimated application of the law remains dubious.
8. Change in the marginal utility of money: The assumption that the marginal utility of the money remain
constant is also not realistic in nature. In actual life marginal utility of money may increase or decrease.
When a consumer buys more goods, he is left with less amount of money. As the marginal utility of the
less money is higher, the consumer has to arrange his expenditure on different goods. Smaller the amount
of money higher is its marginal utility. As a result of it, application of the law will become pretty difficult.
9. Complementary goods: The law does not apply to complimentary goods because they are used in
fixed proportion. By using less of one commodity, use of the other cannot be increased. For example,
one cannot use tape recorder without a cassette and a camera without a reel. One has to buy the
both to bring its utility.

In reality though there are limitations with this law, but it is true that Law of Equi-Marginal Utility is only the law in
economics. This law in actual describes how to get the maximum satisfaction from a limited income.

In short, Chapman has rightly said about this law, “We are not, of course, compelled to distribute our
income according to the law of substitution or Equi-marginal expenditure, as a stone thrown in the air
is compelled to, in a sense to fall back to the earth but as a matter of fact, we do so in a certain rough
fashion because we are reasonable.”

Self Assessment
State whether the following statements are True/False:
8. Law of Equi-Marginal Utility has great importance in geography.
9. Every producer aims at earning maximum profit.

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