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WAEC Economics 2012 Question 5

Question 5

Theory of Consumer Behaviour

A condition for consumer utility maximization is

  1. A.equality of the ratio of marginal utilities and the ratio of prices.
  2. B.equality of the ratio of average utilities and the ratio of prices.
  3. C.equality of the marginal utility to total utility ratio for both commodities.
  4. D.total utility and marginal utility must be zero.
Show the answer and explanation

Answer: A (equality of the ratio of marginal utilities and the ratio of prices.)

Explanation

The consumer is in equilibrium when MUA/MUB = PA/PB.