Q.(a) Explain the Law of Equi-Marginal Utility.

(a) The Law of Equi-Marginal Utility says a consumer maximises satisfaction when the marginal utility per rupee is equal across all goods (MUx/Px = MUy/Py = ...). (b) Tamil Nadu's output is led by the tertiary (services) sector, followed by a strong secondary sector, with the primary sector's share smaller and falling.

(a) Law of Equi-Marginal Utility. Also called the Law of Maximum Satisfaction / Law of Substitution (Gossen's Second Law). It explains how a consumer with a limited income and many wants should spend to get maximum total satisfaction.

Statement. A consumer maximises satisfaction when he distributes his income among different goods in such a way that the marginal utility of the last rupee (unit of money) spent on each good is equal:

MUx / Px = MUy / Py = ... = MU of money

Explanation with an example. If MUx/Px is greater than MUy/Py, the consumer gains more satisfaction per rupee from good X, so he shifts spending from Y to X; as he buys more X its marginal utility falls (diminishing marginal utility) and as he buys less Y its marginal utility rises, until the two ratios become equal. At that point no further reallocation can raise total satisfaction — the consumer is in equilibrium.

Assumptions. Rational consumer, measurable (cardinal) utility, constant money income and prices, and independent utilities.

(b) Sectoral contribution of Tamil Nadu. Tamil Nadu is one of the most developed and industrialised states of India. Its economy is studied through three sectors and their contribution to the Gross State Domestic Product (GSDP):

1. Primary sector (agriculture and allied) — includes crop cultivation, animal husbandry and fishing. Its share of output is relatively small and declining, though it still supports a large section of the rural population. …