A consumer of a single commodity is in equilibrium when

Analyze the question

The question asks about the condition for consumer equilibrium when a consumer buys only one commodity.

Explain the concept

A consumer's goal is to maximize satisfaction (utility) from spending income. For a single commodity, the consumer keeps buying units as long as the satisfaction from the extra unit is worth the price paid.

• Marginal utility (MU) is the extra satisfaction from consuming one more unit.
• Price (P) represents the marginal utility of money, that is, what the consumer gives up to get the unit.

The consumer is in equilibrium when:

MU of the commodity = Price (MU = P)

(In a more precise form, MU/P = marginal utility of money, but for a single commodity this reduces to MU = P in terms of money.)

Step-by-step solution

1. If MU > P, the consumer gains by buying more, so there is no equilibrium yet.
2. If MU < P, the consumer is paying more than the extra satisfaction is worth, so they should buy less.
3. Only when MU = P is there no incentive to change the quantity bought. This is equilibrium.

Checking the options

• A. "Equate his demand with price": demand is a schedule, not something equated with price. Wrong.
• B. "Equates marginal utility and price": this is the correct equilibrium condition. ✔
• C. "Equate marginal and total utilities": MU equals TU only for the very first unit. This is not the equilibrium condition. Wrong.
• D. "MU equals zero": this is the point of satiation (maximum total utility), which would only be equilibrium if the good were free. Wrong.

Answer: B

Exam tip: Remember "MU = P" for one commodity, and "MUx/Px = MUy/Py" for two or more commodities. If you see "MU = 0", think of satiation or a free good, not equilibrium at a positive price.