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Consumer gets maximum satisfaction at the point where
- a)Marginal Utility = Price
- b)Marginal Utility > Price
- c)Marginal Utility < />
- d)Marginal Cost = Price
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consumer gets maximum satisfaction at the point wherea)Marginal Utili...
- As per the law of diminishing marginal utility, the utility of each successive unit goes on diminishing as more and more units of a commodity are consumed.
- A rational consumer will consume the commodity up to a point where the marginal utility of the final unit of the commodity is equal to the marginal utility of money (in terms of price) paid for it. In this way, the consumer will get the maximum satisfaction and will be in equilibrium.
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Consumer gets maximum satisfaction at the point wherea)Marginal Utili...
Consumer Satisfaction and Marginal Utility
Consumer satisfaction refers to the level of fulfillment or contentment that a consumer experiences when consuming a product or service. In economics, the concept of marginal utility is used to measure the additional satisfaction or benefit that a consumer derives from consuming one more unit of a particular good or service.
Understanding Marginal Utility
Marginal utility is based on the principle of diminishing marginal utility, which states that as a consumer consumes more and more units of a good or service, the additional satisfaction or utility derived from each additional unit decreases.
For example, let's consider a consumer who loves eating chocolate bars. The first chocolate bar consumed will provide a high level of satisfaction, as it satisfies the consumer's craving. However, as the consumer continues to eat more chocolate bars, the satisfaction derived from each additional chocolate bar will gradually decrease.
Equilibrium of Price and Marginal Utility
The point of maximum satisfaction for a consumer occurs when the marginal utility of a good is equal to its price. This is because consumers aim to maximize their utility or satisfaction within their given budget constraint.
When the marginal utility of a good is greater than its price, it indicates that the consumer can derive more satisfaction from consuming an additional unit of the good than the cost incurred. In this situation, the consumer would be willing to pay a higher price for the good in order to maximize their satisfaction. However, if the consumer were to consume more units, the marginal utility would eventually decrease and become equal to the price.
On the other hand, if the price of a good is greater than its marginal utility, it means that the consumer is paying more for the good than the satisfaction derived from consuming it. In this case, the consumer would be better off allocating their budget to other goods or services that provide a higher level of satisfaction relative to their price.
Conclusion
In conclusion, maximum satisfaction for a consumer occurs when the marginal utility of a good is equal to its price. This equilibrium point ensures that the consumer is allocating their budget in a way that maximizes their overall satisfaction. It is important for consumers to consider the marginal utility and price of goods when making consumption decisions in order to optimize their level of satisfaction.
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Consumer gets maximum satisfaction at the point wherea)Marginal Utility = Priceb)Marginal Utility > Pricec)Marginal Utility d)Marginal Cost = PriceCorrect answer is option 'A'. Can you explain this answer?
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