When was the last time you experienced Utility Maximization under Consumer Equilibrium conditions?

Question

What does this mean, and can you put it in lamens terms for me.

Answer 1

Wow, reading that question makes me feel like I just took a hit off of some kind of pipe. ;-)

Utility: a measure of usefulness and value

Equilibrium: when free markets settle into a balance of supply and demand, and resources are allocated to their most productive use.

Basically, it means the pie is biggest when markets are allowed to find their own balance.

Does that help?

Answer 2

A condition of consumer equilibrium and utility maximization states that the marginal utility-price ratios for all goods are equal. When you decide how to spend your pay check, you buy some food, some gas for your car, pay your rent, etc and maybe go to a movie. You choose how much to spend on each item based on what you want/need (utility) and the price of each item, so to be as satisfied as you can be (maximization) given the amount of money you have (budget constraint). If you could improve your satisfaction by taking a dollar from gas money and spending it on food, or the reverse (Marginal Utility ) you would not have achieved the maximum because there is a more satisfying way to spend your money. Therefore the marginal utility-price ratios for food and gas are the same at the Maximum.