Question : In the cardinal utility approach, the consumer's equilibrium is achieved when:
Option 1: Total utility is maximized.
Option 2: Marginal utility is maximized.
Option 3: Marginal utility equals zero.
Option 4: Marginal utility per dollar spent is equal across all goods.
Correct Answer: Marginal utility per dollar spent is equal across all goods.
Solution : The correct answer is (d) Marginal utility per dollar spent is equal across all goods.
In the cardinal utility approach, utility is a measurable quantity that can be used to rank different consumption bundles. The consumer's equilibrium is achieved when the consumer is unable to increase their utility by reallocating their spending. This occurs when the marginal utility per dollar spent is equal across all goods.
The cardinal utility approach is not without its critics. One of the main criticisms is that it is difficult to measure utility in a meaningful way. Another criticism is that the cardinal utility approach assumes that consumers are always rational, which is not always the case.
