Download - Consumer equilibrium
Prepared By:- KVS, Delhi Region
Consumer’s Equilibrium with Utility Approach
Prepared By:- KVS, Delhi Region
UTILITY• EXPECTED SATISFACTION
DERIVED FROM THE CONSUMPTION OF A GOOD
• PSYCHOLOGICAL PHENOMENA - DIFFERS FROM CONSUMER TO CONSUMER
• MEASURED IN “UTILS”
Prepared By:- KVS, Delhi Region
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
Prepared By:- KVS, Delhi Region
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
Prepared By:- KVS, Delhi Region
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
Prepared By:- KVS, Delhi Region
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.
Prepared By:- KVS, Delhi Region
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
Prepared By:- KVS, Delhi Region
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
Prepared By:- KVS, Delhi Region
LOCATING CONSUMER EQUILIBRIUM
Prepared By:- KVS, Delhi Region
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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