Consumer Equilibrium

Consumer Equilibrium

MUA/MUB = PA/PB

We can rearrange this equation as:

MUA/PA = MUB /PB

The MU per dollar spent on Good A is equal to the MU per dollar spent on Good B.

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Notes:

The units on the MU ratio cancel out.

The units on the price ratio cancel out.

We therefor maximize utility by equating two unitless numbers. i.e. We do not have to be able to measure utility to make a decision. The utility units or scale of measurement is not important.

If you keep adding goods to your set of choices, you can generalize the utility maximization condition