Gossen’s Second Law Explained
Gossen’s second law is a fundamental principle in microeconomics that deals with consumer behavior and utility maximization.
Equi-marginal Utility Principle
This law is also commonly referred to as the Law of Equi-marginal Utility. It states that a rational consumer will allocate their expenditure in such a way that the ratio of the marginal utility of a good to its price is the same for all goods consumed. This ensures the consumer achieves the maximum possible total utility given their budget constraints.
The mathematical representation is:
$ \\frac{MU_A}{P_A} = \\frac{MU_B}{P_B} = \\dots = \\frac{MU_N}{P_N} $
Where '$MU$' represents marginal utility and '$P$' represents price for different goods (A, B, ..., N).
Identifying Gossen’s Second Law
Comparing this principle with the given options:
- Option A: Law of Equi-marginal Utility - This directly matches the description of Gossen’s second law.
- Option B: Law of Diminishing Marginal Utility - This is Gossen’s first law.
- Option C: Revealed Preference Theory - This is a different consumer choice theory developed later.
- Option D: Indifference Curve Approach - This is a graphical method to represent consumer preferences, related but distinct from Gossen's law itself.
Therefore, the Law of Equi-marginal Utility is Gossen’s second law.
Important Questions from Microeconomics
Which of the following statement is correct?
I. Indifference curves are sloping from left to right.
II. Higher indifference curve gives a higher level of utility.
If in a production process, all inputs are tripled, which of the following statements follows?
I. If the output is tripled, then decreasing returns to scale apply.
II. When the output is doubled, constant returns to scale apply.
III. If the output is more than tripled, then increasing returns to scale apply.
When it is not possible to make someone good without harming someone, then such a situation is called
According to Ricardo what condition is necessary to make possible international trade between two countries?
Match List I with List II:
List- I
Shape of revenue curve of the firm
List – II
Market structure
A.
Kinked revenue-curve (I)
Monopolistic competition B.
Infinitely elastic straight line curve (II)
Perfect competition C.
Relatively less elastic curve (III)
Oligopoly D.
Relatively high elastic curve (IV)
Monopoly.
Choose the correct answer from the options given below -
