A CONSUMER OF A SINGLE COMMODITY IS IN EQUILIBRIUM WHEN

• A. his marginal utility is equal to zero
• B. he can equate his demand with price
• C. he equates marginal utility and price ✓
• D. he can equate his marginal and total utilities

The answer to the question is: C. he equates marginal utility and price

When a consumer of a single commodity is in equilibrium, it means that they have maximized their utility by allocating their budget in such a way that the marginal utility of the last unit of the commodity consumed is equal to the price of that commodity. This concept is based on the principle of diminishing marginal utility, which states that as a consumer consumes more units of a commodity, the additional satisfaction or utility derived from each successive unit decreases.

In practical terms, this equilibrium can be illustrated with the example of a consumer purchasing chocolate bars. Let’s assume that a consumer has a budget to buy three chocolate bars. The first chocolate bar provides a high level of satisfaction, representing a high marginal utility. As the consumer consumes the second and third chocolate bars, the additional satisfaction derived from each bar diminishes, leading to lower marginal utilities. At the same time, the price of each chocolate bar represents the sacrifice or cost incurred by the consumer to obtain it.

Equilibrium is achieved when the consumer allocates their budget in such a way that the marginal utility derived from consuming the last unit of chocolate is equal to its price. If, for instance, the marginal utility of the third chocolate bar is lower than its price, the consumer would not purchase it as it would not add enough satisfaction to justify its cost. On the other hand, if the marginal utility is higher than its price, the consumer would benefit from purchasing an additional unit.

This equilibrium condition reflects rational decision-making by consumers as they seek to maximize their satisfaction within their budget constraints. It also highlights how consumers make choices based on comparing the additional benefit gained from consuming one more unit of a good with its associated cost.