At a price of $5 a buyer will demand 0 units. Which of the following must also equal $5?

None are correct.
The buyer's marginal utility from consuming the Oth unit.
The buyers utility from, consuming the Oth unit.
The market equilibrium price.
The buyer's maximum willingness to pay.

Expert Solution

At a price of $5 the buyer will demand 0 units of the good. Therefore, the marginal utility which he would be getting from buying this extra unit is either 0 or in negative. Hence, the buyer will not buy this unit. He will not consume this unit, hence he will demand 0 units.

Marginal utility is the extra utility which a person gets from consuming an additional unit of the good. Here, the seller has kept the price if $5 ie the person should be willing to spend $5 to get an extra utility from consuming this unit. However, for the consumer who will calculate the marginal utility is not greater than zero. Hence, he will not consume this unit. Again, consumers see the marginal utility which he will be getting from consuming the extra unit. A consumer never sees the total utility. Hence, second option will stand correct that the buyer's $5 will be equal to the marginal utility from consuming the 0th unit. This is because a person will be willing to spend that amount of money which is equal to its marginal utility from consuming another unit of the good.

Hence, option two will stand correct.

Rahul Sunny answered 1 year ago

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