Question : The concept of consumer equilibrium refers to a situation where:
Option 1: The consumer is maximizing total utility.
Option 2: The consumer is maximizing marginal utility.
Option 3: The consumer is consuming goods in equal proportions.
Option 4: The consumer is consuming goods within the budget constraint.
Correct Answer: The consumer is maximizing marginal utility.
Solution : The correct answer is (b) The consumer is maximizing marginal utility.
Consumer equilibrium refers to a situation where a consumer allocates their limited income or resources in a way that maximizes their satisfaction or utility. In other words, the consumer achieves equilibrium when they cannot increase their total utility by reallocating their consumption bundle.
Maximizing marginal utility is a key condition for consumer equilibrium because it ensures that the consumer is allocating their resources in a way that maximizes the additional satisfaction or utility derived from the last unit of each good consumed. At the point of equilibrium, the ratio of marginal utilities to prices for all goods consumed is equal, allowing the consumer to achieve the highest level of utility given their budget constraint. While total utility and equal proportions of consumption can be related to consumer preferences, they do not necessarily indicate consumer equilibrium. The consumer may still have the potential to reallocate their consumption bundle to increase their total utility or better align with their preferences, as long as they are not already in equilibrium.
Option 2: The consumer is maximizing marginal utilitv.
Question : In the cardinal utility approach, consumer's equilibrium is achieved when:
Option 1: Total utility is maximized.
Option 2: Marginal utility is maximized.
Option 3: Marginal utility equals zero.
Option 4: Marginal utility per dollar spent is equal across all goods.
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