Question : The consumer reaches equilibrium when:
Option 1: Total utility is maximized
Option 2: Marginal utility is maximized
Option 3: Price is minimized
Option 4: Income is maximized
Correct Answer: Marginal utility is maximized
Solution : The correct answer is (b) Marginal utility is maximized.
In consumer theory, the concept of equilibrium refers to a situation where a consumer has maximized their satisfaction or utility given their budget constraint and the prices of goods and services. At equilibrium, the consumer allocates their income in such a way that the marginal utility per unit of money spent is equal across all goods and services. This means that the consumer cannot increase their total utility by reallocating their expenditure. Therefore, the consumer reaches equilibrium when the marginal utility derived from the last unit of money spent on each good is maximized.
Related Questions
Trending Articles/News
