In case of consumption of one commodity, consumer's equilibrium is attained, when:

Question

Accepted Answer

The correct option is 2:

In the case of a single commodity, consumer's equilibrium is attained when the Marginal Utility (MU) derived from the consumption of the product is equal to the price of the product, adjusted for the marginal utility of money (which is assumed to be constant). This condition is represented by the formula: MU of Product / MU of Money = Price of the Product (or $MU_x / MU_m = P_x$). This fundamental principle, based on the cardinal utility approach, ensures that the consumer maximizes satisfaction. At this point, the satisfaction gained from the last unit of money spent on the commodity is exactly equal to the satisfaction that unit of money could have provided if held by the consumer. If the ratio were greater than the price, the consumer would buy more; if it were less, the consumer would buy less, until this equality is reached.

The incorrect option is 1: This option presents the inverted relationship: Marginal utility of Money / Marginal utility of the Product = Price of the product. For equilibrium, the marginal utility derived from the product per rupee (MU of Product / Price of Product) must be compared against the marginal utility of money, or alternatively, the ratio must match the price as shown in the correct option. Option 1 states the ratio in an incorrect algebraic form for the equilibrium condition.

The incorrect option is 3: Consumer equilibrium is based on marginal utility, not total utility. Total utility continues to increase as consumption increases (though at a diminishing rate) and is therefore not the relevant concept for determining the precise point of equilibrium for the last unit consumed. Furthermore, this option relates the total utility ratio to the consumer's income, which is irrelevant to the marginal decision-making process for attaining equilibrium on a single good.

The incorrect option is 4: Similar to Option 3, this option incorrectly uses Total Utility (TU) in the numerator. Equilibrium is a marginal concept, focusing on the satisfaction derived from the *next* unit of the commodity. Total utility is a measure of aggregate satisfaction, which is maximized when the marginal condition (Option 2) is met, but TU itself is not the condition for equilibrium.