Question

As a consumer, will you equate price with total utility or marginal utility? Give reason in
support to your answer.​

Answer 1

Answer:

A consumer would equate price (P) of the  commodity with its marginal utility(MU), not total utility (TU).

Reason: The consumer, while buying a unit of a commodity, compares additional benefit and additional cost related to that unit. Additional benefit is MU, while additional cost is price of the commodity. He will buy a particular unit only when MU is at least equal to price. And, he strikes his equilibrium when MU (in terms of money) = Price.

The consumer does not compare price with TU. Because , TU is the sum total of utility resulting from all the units of a commodity he is buying. It cannot be compared with price which is always related to one unit (or is always expressed as 'per unit').