Where marginal utility of each commodity per unit of expenditure is the same, this is called the Law of Equimarginal Utility. Principle of equimarginal utility occupies an important place in marginal utility analysis. It is through the principle that consumer’s equilibrium is explained. It is also called Law of Substitution because in it for reaching equilibrium position consumer substitutes one good for another.
A consumer has a given income which he has to spend on various goods he wants. Now, the question is how he would allocate his money income among various goods, that is to say, what would be his equilibrium position in respect of the purchases of the various goods. It may be mentioned here that consumer is assumed to be ‘rational’, that is, he coldly and carefully calculates and substitutes goods for one another so as to maximize his utility or satisfaction.