Hermann heinrich gossen wiki

Optimize by equalizing marginal utilities

Gossen's Second “Law”, named for Hermann Heinrich Gossen (1810–1858), is the assertion that an economic agent will allocate his or her expenditures such that the ratio of the marginal utility of each good or service to its price (the marginal expenditure necessary for its acquisition) is equal to that for every other good or service.

Formally,

where

Informal derivation

Imagine that an agent has spent money on various sorts of goods or services. If the last unit of currency spent on goods or services of one sort bought a quantity with less marginal utility than that which would have been associated with the quantity of another sort that could have been bought with the money, then the agent would have been better off instead buying more of that other good or service.

Assuming that goods and services are continuously divisible, the only way that it is possible that the marginal expenditure on one good or