Question

In the process of consumption, the consumer stops purchasing the commodity at the point where

• A. Marginal utility $>$ Price
• B. Marginal utility $<$ Price
• C. Marginal utility = Price
• D. Marginal utility = Total utility

Hint:

Remember the consumer's decision rule:
- If $MU > Price \rightarrow$ Buy more.
- If $MU < Price \rightarrow$ Buy less.
- If $MU = Price \rightarrow$ Stop buying (Equilibrium).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Consumer equilibrium is the state where a consumer maximizes their total utility from consuming a commodity, given their income and the market price.
This equilibrium is analyzed using the Law of Diminishing Marginal Utility, which states that as consumption of a good increases, the marginal utility ($MU$) derived from each additional unit decreases.

Step 2: Detailed Explanation:
Let us analyze the relationship between Marginal Utility ($MU$) and Price ($P$) to understand the consumer's purchasing decisions:
1. When $MU > P$ (Option A):
The satisfaction or utility the consumer gets from consuming an additional unit of the commodity is greater than the price they have to pay for it.
This means the consumer will continue to purchase more units of the commodity to increase their total utility.
2. When $MU < P$ (Option B):
The utility derived from an additional unit is less than the price paid for it.
The consumer feels they are not getting enough value for their money, so they will reduce their consumption.
3. When $MU = P$ (Option C):
At this point, the satisfaction derived from the last unit consumed is exactly equal to the price paid for it.
The consumer has maximized their net utility (surplus) and has no incentive to purchase more or fewer units.
This is the point of consumer equilibrium, where the consumer stops purchasing.
Thus, the equilibrium condition for a single commodity is:
\[ MU_x = P_x \]

Step 3: Final Answer:
In the process of consumption, the consumer stops purchasing the commodity at the point where Marginal utility equals Price.
Therefore, the correct option is (C).