Real life involves choosing between multiple goods (e.g., Apples & Oranges).
Condition for Equilibrium: The consumer will allocate income such that the last rupee spent on each good yields the same marginal utility.
Formula: [ \fracMU_xP_x = \fracMU_yP_y = MU_m ]
Rationale:
| Units of Apples | MU (utils) | Price (₹) | Decision | | :--- | :--- | :--- | :--- | | 1 | 20 | 10 | MU > P → Buy more | | 2 | 15 | 10 | MU > P → Buy more | | 3 | 10 | 10 | Equilibrium → Stop | | 4 | 8 | 10 | MU < P → Reduce | consumer equilibrium class 11 notes free
Conclusion: The consumer will buy 3 units to reach equilibrium.
| Term | Meaning | Example (Eating Pizza) |
| :--- | :--- | :--- |
| Total Utility (TU) | Sum of utility derived from all consumed units. | TU of 3 slices = 50 utils (10+15+25) |
| Marginal Utility (MU) | Additional utility from consuming one extra unit.
Formula: ( MU_n = TU_n - TU_n-1 ) | MU of 3rd slice = 25 utils |
| Law of DMU | As you consume more, MU keeps falling. | 1st slice = high joy; 4th slice = less joy. |
This is the graphical method considered more realistic because it doesn't assume utility is measurable.
Consumer Equilibrium refers to a situation where a consumer derives maximum satisfaction from his limited income, given the prices of commodities. At this point, the consumer has no tendency to change his expenditure pattern. Real life involves choosing between multiple goods (e
Assumptions:
| Term | Definition | | :--- | :--- | | Total Utility | Sum of satisfaction from all units consumed. | | Marginal Utility | Additional utility from consuming one extra unit. | | Indifference Map | A family of indifference curves (higher IC = higher satisfaction). | | Budget Set | All bundles a consumer can afford. | | MRS (Marginal Rate of Substitution) | The amount of good Y a consumer is willing to give up for one more unit of X. |
The Law: A consumer will buy apples until: Marginal Utility of Apple (in ₹) = Price of Apple
Formula: [ \fracMU_xMU_m = P_x ] Where MU_m = Marginal Utility of Money (usually assumed = 1) | Term | Meaning | Example (Eating Pizza)
Conditions for Equilibrium:
Example:
Assumption: The consumer spends their entire income on a single good (say, Good X), and the price is fixed.
Condition for Equilibrium: A consumer will consume a good up to the point where the Marginal Utility (in money terms) is equal to the price of the commodity.
Equation: $$MU_x = P_x$$
Explanation: