consumer equilibrium

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Consumer’s Equilibrium with Utility Approach

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UTILITY• EXPECTED SATISFACTION

DERIVED FROM THE CONSUMPTION OF A GOOD

• PSYCHOLOGICAL PHENOMENA - DIFFERS FROM CONSUMER TO CONSUMER

• MEASURED IN “UTILS”

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TWO TYPE OF UTILITY

Sum total of satisfaction that the consumer derives when a certain number of units of particular commodity are consumed

TU=F(Qx) or TU=∑MU

TOTAL UTILITYMARGINAL

UTILITY

It means addition to the total utility from the consumption of an one more unit of a good.

Mun = TUn-TUn-1

or, Mux = ∆Tux ∕ ∆Qx

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Assumptions of the Utility Approach

• Utility can be cardinally measurable, i.e. can be expressed in exact units;

• Utility is measurable in monetary terms;

• Consumer’s income is given;• Prices of commodities are given &

constant;• Constant Marginal Utility of Money

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LAW OF DIMINISHING MARGINAL UTILITY

As a consumer goes on coming more and more units of a commodity the additional benefit that he derives from the additional unit of a commodity goes on falling

MUx

Marginal utility ( in Rs.)

Quantity

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Consumer EquilibriumIt refers to a situation under which a consumer spends his entire income on purchase of a good in such a manner that gives him maximum satisfaction and he has no tendency to change it.

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Condition of Consumer EquilibriumMUx \ Px =MUm where,MUx = Marginal Utility of Product ‘x’Px = Price of ‘x’MUm = Marginal Utility of money • MUx = MUm * Px ty of Money

Marginal Utility of the good = Utility of Price paid

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UTILITY SCHEDULE OF A CONSUMER

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Graphical Presentation

Consumer’s Equilibrium – One Commodity

Price, Utility

Quantity

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CASE OF A SINGLE COMMODITY

For the consumer Utility obtained−Benefit. Price Payable−Cost. A consumer will continue to consume additional

units of a commodity till the point where his marginal utility (in terms of money ) is greater than or equal to the price of the commodity.

Being a rational consumer he wouldn’t pay more price for a product that gives him lesser sati

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LOCATING CONSUMER EQUILIBRIUM

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Questions for self-Evaluation

• Define utility.• What is marginal utility ?• Explain the law of marginal utility with

the help of example.• What does consumer equilibrium

mean?• State the condition of consumer’s

equilibrium in the case of single commodity.

Prepared By:- KVS, Delhi Region

Mrs. Anita Bhardwaj KV,

Vigyan Vihar

Mrs .Monika Bajaj KV,

Tagore Garden

Mrs. Leena Singh KV, AGCR

Mr. Sri Keshav KV, no.2 Delhi

Cantt

Mrs .Ritu Tanwar KV, AFS

Rajokri

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