Question

Explain the following function of money:

Maximisation of utility

Answer 1

1. As we know a rational consumer wants to maximise his utility (or satisfaction) while purchasing various goods and services.
2. Consumer will be able to maximise his total utility, if the ratios of marginal utilities of different commodities are equal to the price ratio of different goods.
3. For equalising the marginal utilities, money plays an important role, because prices of all commodities are expressed in terms of money.