In terms of utility theory, "equilibrium" in the real world means that
A)households are consuming as much of every commodity as they would like
B)households have spent their incomes in such a way that their overall satisfaction is maximized
C)households have spent their incomes in such a way that their marginal utility is maximized
D)households have spent their incomes in such a way that their marginal utility is zero for every product consumed
E)households have spent their incomes in such a way that their total utility is zero

Question

Quizplus · Accepted Answer

Equilibrium refers to a situation where a household has allocated its budget in a way that maximizes its overall satisfaction or utility. This occurs when the household has spent all its income on goods and services such that the last unit of each good purchased offers the same marginal utility per dollar spent, as well as across all goods purchased. This condition is known as Pareto efficiency or allocative efficiency. Therefore, option B is the correct answer.

In Terms of Utility Theory, "Equilibrium" in the Real World