Question

Discuss the equimarginal principle. What role does it play in the environment?

Answer 1

The Principal of equimariginal utlity states that consumers will distribute their income between two goods in such a manner that the utility dereivd from the consumtpion of last uint of each good is same.

In general at eqm the marginal utility of money is same of all the goods.

For environment we use this priciple to ensure cost effectiveness. It is used to minimise the costs of say a pollution process where we equalise the marginal cost of abatement.

Following from equimarginal principle we see the marginal cost of production across all the firms will be same.