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CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production

In the cardinal utility approach, a consumer buying a single commodity is in equilibrium when:

A consumer of a single commodity is in equilibrium when the marginal utility of the commodity equals its price, with the marginal utility of money taken as constant. Buying more would cost more than the satisfaction gained, and buying less forgoes net gain.

  1. AMarginal utility of the commodity equals its price (in terms of the marginal utility of money)Correct
  2. BTotal utility is zero
  3. CAverage utility equals marginal utility of money
  4. DPrice equals total utility

Explanation

In the cardinal approach for one good, the consumer buys until MU of the good equals the price, measured with the MU of money constant. At that point no further gain is possible by buying more or less. Total utility is maximal only when MU is zero, which applies to free goods.

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