Importance of DMU

Economics

Exceptions to the Law:
1. Hobbies 2. Drunkards 3. Misers
4. Music and Poetry and 5. Readings

Importance or Application of the Law of DMU: 1. The Law of DMU is one of the
fundamental laws of consumption.It has applications in several fields of study. 2. This law is the basis for other consumption laws such as Law of Demand, Elasticity of Demand,Consumer’s Surplus and the Law of
Substitution etc.
3. The Finance Minister taxes a more- moneyed person more and a less-moneyed person less. When a person’s income rises, the tax-rate rises because the MU of money to him falls with every rise in his income. Thus, the Law of DMU is the basis for progressive taxation.
4. This law emphasises an equitable distribution of wealth. The MU of money to the more-moneyed is low.Hence, redistribution of income from rich to poor is justified.
5. Adam Smith explains the famous “diamond-water paradox”. Diamond is scarce, hence, its MU is high and its price is high, even though it is not very much needed. Water is abundant, hence, its MU is low and
its price is low, even though it is very much essential.

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