Question

Which condition shows equilibrium when a consumer divides a single commodity for two uses, A and B?

Options

• Total utility from A and B is the same

• The prices of A and B are equal

• Marginal utility from A is equal to marginal utility from B

• Consumer’s income is maximised.

Answer 1

Marginal utility from A is equal to marginal utility from B

Explanation:

For equilibrium in two uses, marginal utility from each use must be equal (MUA = MUB).