Question

For a particular consumer, the marginal utility of a hamburger equals the marginal utility of a hotdog. If the price of a hamburger is more than the price of a hotdog, is the consumer in equilibrium? Why or why not? If not, what should the consumer do to attain equilibrium?

Answer 1

According to the principal of equimarginal utility, a consumer maximizes utility when the consumer receives the same utility from the per dollar spent on both the goods.

So, according to this principle, the consumer here will maximize utility when :

the marginal utility of hamburger/price of hamburger = marginal utility of hotdog/price of hotdog.

Here, the marginal utility of hamburger = marginal utility of hotdog; however, the price of a hamburger is more than the price of a hotdog. So, the marginal utility of hamburger/price pf hamburger ≠ marginal utility of hotdog/price of the hot dog. So, the consumer is not in equilibrium.

The consumer needs to lower the consumption of hamburger and increase the consumption of hot dogs. This will lower the marginal utility of hotdog and increase the marginal utility of hamburger and help us achieve the principle of equimarginal utility.