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Difficulty: EasyCardinal Utility Analysis and Consumer Equilibrium

Under cardinal utility analysis, at what point does a rational consumer attain equilibrium when consuming a single commodity?

  1. When the marginal utility of the commodity equals its priceAnswer
  2. B
    When the total utility of the commodity equals its price
  3. C
    When marginal utility is equal to total utility
  4. D
    When consumer surplus is equal to total expenditure

Answer

A rational consumer reaches equilibrium when the marginal utility of the commodity is equal to its price.
Under cardinal utility analysis, a consumer maximizes satisfaction for a single good at the point where the marginal utility (MUMU) of the commodity equals its market price (PP). At this point, the gain from consuming one extra unit exactly balances the expenditure required.

Step-by-Step Solution

1
Identify the cardinal utility equilibrium condition for a single good.
The equilibrium condition is MUx=PxMU_x = P_x, where MUxMU_x is marginal utility in monetary terms and PxP_x is price.
A rational consumer maximizes net satisfaction when the gain in utility from the last unit consumed equals the sacrifice made in paying its price.

Key Concept

Consumer Equilibrium in Cardinal Utility Analysis (Single-Good Case)
Estimated Time:45s
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Topics

Cardinal Utility Analysis and Consumer Equilibrium

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