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Given the price of a good, how will a consumer decide as to how much quantity to buy of that goods ? Explain. |
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Answer» The consumer decides how much quantity of the commodity is to be purchased by comparing its marginal utility (MU) with price to be paid (P). The consumer buys as long as MU is greater or at least equal to Price i.e. MU > P. As the consumer consumes more units of the good, Marginal Utility declines due to the operation of the Law of Diminishing Marginal Utility. If the consumer consumes even after, MU = P, Marginal Utility will become lesser than Price, i.e MU<P. |
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