Why is it wrong to say utility is maximized when the marginal utilities of all goods are exactly equal correct the statement and explain?

4. Why is it wrong to say, “Utility is maximized when the marginal utilities of all goods are exactly equal”? Correct the statement and explain. The statement, “Utility is maximized when the marginal utilities of all goods are exactly equal”, ignores the role of price.

Is in equilibrium when marginal utilities are?

A consumer is in equilibrium when marginal utilities are equal. A consumer is in equilibrium when he derives maximum satisfaction from the goods and is in no position to rearrange his purchases.

What are the conditions necessary for consumer equilibrium under the marginal utility theory?

For a consumer “to be in equilibrium with respect to all goods, the marginal significance of all goods in terms of money must equal their money prices.” Now if price of commodity X falls, if the fraction is still to be equal to k which is constant, the numerator, i.e., the marginal utility of X must also fall.

Does the law of diminishing marginal utility hold for all goods and services we buy and consume what are the exceptions?

The law of diminishing marginal utility states that as more and more of goods are consumed, the utility derived from them falls. However, there is an exception to this law. It is observed that a consumer sometimes gain more utility as more and more of a good is consumed.

How would marginal utility and market demand be affected by a rise in the price of a complementary good?

96  How would marginal utility and market demand be affected by a rise in the price of a complementary good? Marginal utility and market demand would fall (shift to the left). The rise in the price of the complement would cause less of it to be consumed.

When marginal utility is positive what happens to total utility?

When Marginal Utility is positive, Total Utility Decreases. When we say that the total utility is increasing at a diminishing rate, we mean that amount of change in total utility is decreasing with the consumption of every extra unit which is nothing but marginal utility.

How does it explain consumer’s equilibrium?

Consumer’s Equilibrium means a state of maximum satisfaction. A situation where a consumer spends his given income purchasing one or more commodities so that he gets maximum satisfaction and has no urge to change this level of consumption, given the prices of commodities, is known as the consumer’s equilibrium.

At what point is a consumer said to be at equilibrium in the utility theory?

According to the law of equi-marginal utility a consumer will be in equilibrium when the ratio of marginal utility of a commodity to its price equals the ratio of marginal utility of other commodity to its price.

How does it explain consumer equilibrium?

What are the criticisms of the law of diminishing marginal utility?

Criticisms to the law of diminishing marginal utility: Based on unrealistic assumptions Not applicable to indivisible and bulky goods The law is restricted to satisfaction of a single want. In reality – Economics. Criticisms to the law of diminishing marginal utility: Based on unrealistic assumptions.

Do you think that the law of diminishing marginal utility always holds true Why or why not?

The law of diminishing marginal utility does not hold true in case of knowledge of an individual. This is because an individual obtains more and more utility from additional unit received from knowledge. It only increases the level of satisfaction when he gain additional knowledge.

Is in equilibrium at a point where the budget line?

The consumer is in equilibrium at a point where the budget line is tangent to an indifference curve. It means that marginal substitution rate between X and Y (MRSXY) should be diminishing.