Given price of a goods, how does a consumer decide as to how much of the good to buy?

Solution

The marginal utility of a good or service is the gain from an increase, or loss from a decrease, in the consumption of that good or service. In order to decide, how much of a good to buy at a given price, a consumer compares Marginal Utility (MU) of the good with its price (P). The consumer will be at equilibrium, when the Marginal Utility of the good will be equal to the price of the good.
i.e. MUx = Px
If MUx > Px, that is, when price is lesser than the Marginal Utility, then the consumer will buy more of that good.
On the other hand, if MUx < Px, that is, when price is more than the Marginal Utility, then the consumer will buy less of good.

Some More Questions From Theory Of Consumer Behaviour Chapter

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Theory Of Consumer Behaviour

Given price of a goods, how does a consumer decide as to how much of the good to buy?

Some More Questions From Theory Of Consumer Behaviour Chapter

Why is MRS always diminishing?

When does a consumer attain equilibrium according to indifference curve approach?

Give meaning of demand.

Name two determinants of demand.

List the factors that cause changes in demand.

What is law of demand?

What is demand schedule?

Why does demand curve slope downwards?

Differentiate between substitute and complementary goods.

What is meant by one good being substitute of other?

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