Given the market price of a good,how does a consumer decide as to how many units of that goods to buy? Explain
Given the market price of the good a consumer decides how many units of the good to purchase based on the Marginal Utility he derives from consumption of each additional unit of the good and the Marginal Utility of money for him.
A consumer purchases those many units of good where the marginal utility of a rupee spent on the good (MUX ) becomes equal to the marginal utility of money (MUm)
That is where,
However, if the marginal utility of the rupee spent on the commodity is greater than the marginal utility of money, that is, , then consumer would continue to consume more and more units of output until the equality is again reached.
On the other hand, if the marginal utility of the rupee spent on the commodity is less than the marginal utility of money, that is,, then the consumer would reduce the consumption until marginal utility becomes equal to the price paid by him.
This basically Depends on The thinking level of that particular consumer/buyer of the good. As we all know in our socity there is difference in our income levels. Each & every consumer will take decision for buying goods according to his need...in addtition of his ltd. income.
As we all know,our wants are unlimited with our ltd. income...