Consumer equilibrium


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Consumer equilibrium

  1. 1. Prepared By:- KVS, Delhi Region
  2. 2. Prepared By:- KVS, Delhi Region
  3. 3. Prepared By:- KVS, Delhi Region 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 UTILITY MARGINAL 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
  4. 4. 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
  5. 5. Prepared By:- KVS, Delhi Region 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
  6. 6. Prepared By:- KVS, Delhi Region Consumer Equilibrium It 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.
  7. 7. Prepared By:- KVS, Delhi Region Condition of Consumer Equilibrium MUx 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
  8. 8. Prepared By:- KVS, Delhi Region UTILITY SCHEDULE OF A CONSUMER
  9. 9. Prepared By:- KVS, Delhi Region Graphical Presentation Consumer’s Equilibrium – One Commodity Price, Utility Quantity
  10. 10. Prepared By:- KVS, Delhi Region 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
  11. 11. Prepared By:- KVS, Delhi Region LOCATING CONSUMER EQUILIBRIUM
  12. 12. 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.
  13. 13. 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 Compiled by:-