equimarginal principle

The equimarginal principle, also known as the law of equal marginal utilities, is a fundamental concept in economics. It states that consumers will allocate their spending in such a way that the marginal utility (the additional satisfaction from consuming one more unit of a good or service) per dollar spent is equal across all goods and services they purchase.

This principle helps explain how consumers make choices to maximize their overall satisfaction. For example, if a consumer finds that the additional satisfaction from buying another apple is greater than the additional satisfaction from buying another orange, they will buy more apples until the marginal utility per dollar spent on apples equals that of oranges. This concept was crucial in solving the "paradox of value," explaining why diamonds, though less essential than bread, are more expensive due to their scarcity and high marginal utility.1