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

Under the cardinal utility approach, a consumer buying a single commodity reaches equilibrium when:

A consumer of one commodity is in equilibrium when the marginal utility of the good equals its price, assuming the marginal utility of money is constant. Beyond this point an extra unit costs more than the satisfaction it gives, so the consumer stops buying.

  1. ATotal utility from the commodity is zero
  2. BMarginal utility of the commodity equals its price, with marginal utility of money taken as constantCorrect
  3. CAverage utility equals marginal utility at the first unit
  4. DMarginal utility is negative so that consumer surplus is maximised

Explanation

In the one-commodity case, a consumer buys units until the marginal utility of the good, expressed in money terms, equals the price paid. This assumes the marginal utility of money is constant. Zero total utility or negative marginal utility would mean the consumer is not maximising satisfaction.

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