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JAMB Economics 1988 Question 16

Question 16

Theory of Consumer Behaviour

If all goods were free, a rational consumer would consume

  1. A.an infinite amount of each good
  2. B.the amount where marginal utility became zero
  3. C.the same amount as when each good had a price
  4. D.the amount where marginal utility was the highest.
Show the answer and explanation

Answer: B (the amount where marginal utility became zero)

Explanation

A consumer buys until marginal utility equals price. If the price is zero, he consumes until marginal utility falls to zero; beyond that, extra units would make him worse off.