JAMB Economics 2016 Paper

Concept:A consumer maximizes utility when the satisfaction gained from the last unit purchased matches its price.Explanation:Marginal utility is the extra satisfaction obtained from consuming one more unit of a commodity.If marginal utility is greater than the price, the consumer gains by buying more.If marginal utility is less than the price, the consumer loses satisfaction by buying that unit.The best balance is reached when $\mathrm{MU} = \mathrm{P}$.For two or more commodities, the consumer maximizes utility when $\frac{\mathrm{MU}_x}{\mathrm{P}_x} = \frac{\mathrm{MU}_y}{\mathrm{P}_y}$.This means the last money spent on each good gives equal marginal utility.Therefore, utility is maximized when marginal utility equals the price paid.Answer:A. Marginal utility of a commodity is equal to the price paid for it.