1. Basis of economic laws:
Various laws of
economics are derived on the basis of law of diminishing marginal utility. For example law of
demand, law of substitution, concept of consumers’ surplus, etc.
2. Importance to the finance minister:
This law helps finance
minister to formulate fiscal policy. Finance minister impose high tax to the
rich people and low tax to the poor people on the basis of the law.
3. Importance to consumer:
This law is useful to
consumer because by consuming the more units of commodity, satisfaction starts
to decline. On the basis of this law consumer spends his/her money to purchase
suitable quantity of commodity which maximizes his/her satisfaction.
4. Useful to reduce unequal distribution of
wealth:
This law is useful for
the government to reduce the unequal distribution of wealth because marginal
utility of wealth for poor is high and for rich is low. So to maintain M.U of
wealth government imposes the progressive tax (i.e. high tax to rich and low
tax to poor).
5. Price determination:
This law is useful to
determine the price. Basically price of commodity depends on utility so if
seller wants to sell more quantity he must reduce the price or for more
quantity to sell a unit price is low.
