Test Index

WAEC Economics 2012 Paper

Question : 5

Total: 49

A condition for consumer utility maximization is

equality of the ratio of marginal utilities and the ratio of prices
equality of the ratio of average utilities and the ratio of prices
equality of the marginal utility to total utility ratio for both commodities
total utility and marginal utility must be zero

Solution:

Concept:

Consumer utility maximization occurs when the consumer allocates income so that the last rupee spent on each good gives the same marginal utility per rupee.

Explanation:

The condition for maximum satisfaction is when the ratio of marginal utilities equals the ratio of prices.

That is,

\frac{MU_x}{MU_y} = \frac{P_x}{P_y}

, or equivalently

\frac{MU_x}{P_x} = \frac{MU_y}{P_y}

This ensures that no reallocation of expenditure can increase total utility.

Option A correctly states this condition as equality of the ratio of marginal utilities and the ratio of prices.

Other options involve average utility, total utility ratios, or zero utilities, which are not the required maximization condition.

Answer:

A. equality of the ratio of marginal utilities and the ratio of prices.

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