Consumer equilibrium exists when:
A) the marginal utility of each good and service consumed is equal.
B) the total utility of each good and service consumed is equal.
C) the marginal utility of each good and service consumed equals its price.
D) ratio of marginal utility to price for all goods and services is equal.

Question

Quizplus · Accepted Answer

Consumer equilibrium is achieved when the consumer allocates their income in such a way that the ratio of the marginal utility to price for all goods and services is equal. This is known as the law of equi-marginal utility. It ensures that the consumer is getting the maximum satisfaction possible from their limited budget. Choice A is incorrect because the marginal utility of each good need not be equal, as long as the ratios are equal. Choice B is incorrect because total utility cannot be compared across goods with different prices. Choice C is incorrect because the marginal utility need not equal the price, as long as the ratio is equal.

Consumer Equilibrium Exists When