Sita and Geeta are two close friends and both are graduate working women. Sita is an economic graduate and doing research in economics while Geeta is a customer relation manager in a multinational company. In 1sy January, 2023 both the friends decide to go out for a dinner to celebrate new year. Geeta is fond of Ice-Cream (Orange bar) and has decided to but from a street vendor ₹10 unit after discount. She has also offered to Sita but Sita denied as having throat infection.

Geeta has requested to Sita to apply economics principles and to respond, when she should be stopped consuming more ice-cream. On consuming 3rd unit of Ice-cream, Geeta has obtained additional satisfaction of 18 units while the marginal utility of a rupee is 2 utils.

Suppose that you are Sita, being good friend of Geeta you are required to suggest her whether Geeta should stop herself or to consume more units of Ice-creams. (Identify the correct option.)

Geeta in deficit, hence she should not consume more units of ice-cream.

The correct answer is option 3 : Geeta in deficit, hence she should not consume more units of ice-cream.

According to the Law of Equi-Marginal Utility, a consumer is in equilibrium when:

MU/Price = marginal utility of Money (MUm)

Given:

• Marginal Utility (MU) from 3rd unit = 18 utils

• Price of one ice-cream = ₹10

• Marginal Utility of Money (MUm) = 2 utils

Now calculate:

MU/P= 18/10 = 1.8 utils per ₹

This value (1.8) is less than the Marginal Utility of Money (2).
Since the marginal utility per rupee spent on ice cream is less than the marginal utility of money, Geeta is in a situation where she is getting less satisfaction from spending on ice cream compared to other potential uses of that money. This means Geeta is not getting enough utility for each rupee spent, so she is in deficit.

Therefore, Geeta should stop consuming more ice cream to move towards consumer equilibrium. To achieve consumer equilibrium, she should only consume up to the point where the utility per rupee spent equals the utility of money — i.e., MU/P = MUm.