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Question

As a consumer, would you equate price of a commodity with total utility or marginal utility? Give reason in support of your answer.

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Solution

A consumer would equate price (P) of the commodity with its marginal utility(MU), not total utility (TU).
Reason: The consumer, while buying a unit of a commodity, compares additional benefit and additional cost related to that unit. Additional benefit is MU, while additional cost is price of the commodity. He will buy a particular unit only when MU is at least equal to price. And, he strikes his equilibrium when MU (in terms of money) =
Price.
The consumer does not compare price with TU. Because , TU is the sum total of utility resulting from all the units of a commodity he is buying. It cannot be compared with price which is always related to one unit (or is always expressed as 'per unit').

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