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.