Limitations of the Law of Equimarginal Utility

The law of equimarginal utility is subject to the following limitations:

• The law assumes utility to be measurable. But utility is a subjective concept and cannot be measured objectively.

• The law assumes the consumer to be rational. He can calculate and compare the marginal utilities of different commodities he wants to buy. But in practice this is very difficult. Human mind is not a calculating machine or a computer to calculate and compare exactly the marginal utility of different commodities. The consumer is generally guided by custom, fashion and other social influences. Moreover the consumer may not know the price, quality of all the goods I the market. This ignorance of the consumer stands on the way of comparing the marginal utility of different goods.

• It is very difficult to apply the law in case indivisible goods like motor, car, building, washing machine, etc. These goods are not available in small fractional units. It is not possible to divide them without losing their value. In such making of perfect adjustments in marginal utilities is a difficult proposition.

• The assumption that the marginal utility of money remains constant is not correct. Actually when the consumer goes on spending money, his stock of money decreases. So the marginal utility instead of being constant may actually increase.

• Unlike the law of diminishing marginal utility. the law of equimarginal utility is not applicable to free goods. In case of free goods, we do not pay a price to have it. Hence is no need to substitute one good for the other or the question of comparing the marginal utility of last unit of money spent on different items does not arise.