Demand

The marginal utility of money remains constant even though the quantity of money with the consumer is diminished by the successive purchases made by him. It is assumed that while marginal utility of a commodity varies with the quantity of the commodity purchased, the marginal utility of money remains throughout the same as the quantity of the good purchased varies. This assumption becomes necessary because the marginal utility of a commodity is measured in terms of money. It is considered desirable that the measure itself should not keep changing. When a person purchases more of a good, the amount of money with him must diminish and the marginal utility of money must increase. But this variation in the marginal utility of money is ignored and it is assumed to remain constant throughout. To facilitate the diminishing marginal utility of commodities, to provide it a context ; marginal utility of money is held constant .

Madhuri Veluri

CA Inter

★ 2K+

15-May-21 11:20