Question

In case of single commodity, consumer's equilibrium is achieved when

• A. MU$_x$>P$_x$
• B. MU$_x$<P$_x$
• C. MU$_x$ ≠ P$_x$
• D. MU$_x$ = P$_x$

Hint:

In consumer theory, equilibrium is achieved when the marginal utility per unit of currency spent on a good is equal to the price of the good.

Answer 1

The Correct Option is D

Step 1: Understanding Consumer's Equilibrium:
Consumer's equilibrium occurs when the consumer has allocated their income in such a way that the marginal utility (MU) of each good equals the price (P) of that good. This ensures that the consumer is maximizing their utility given their budget.
Step 2: Analyzing the Options:
- Option (A): This is incorrect because if MU$_x$>P$_x$, the consumer would be willing to purchase more of the commodity, meaning equilibrium has not yet been reached.
- Option (B): This is incorrect because if MU$_x$<P$_x$, the consumer would be overpaying for the commodity relative to the utility derived from it.
- Option (C): This is incorrect because MU$_x$ ≠ P$_x$ means that the consumer is not in equilibrium, as the marginal utility per unit of expenditure on the good is not equal to its price.
- Option (D): This is correct because when MU$_x$ = P$_x$, the consumer is in equilibrium, meaning the marginal utility of the good is exactly equal to its price, maximizing satisfaction.

Step 3: Conclusion:
The correct answer is option (D), as consumer's equilibrium is achieved when MU$_x$ equals P$_x$.