.jpg) |
| Image source – Enotes world |
A rational consumer will purchase a commodity up to the point where the price of the commodity is equivalent to the marginal utility obtained from the thing.
If this condition is not fulfilled, the consumer will either purchase more or less. If he purchases more, the MU will fall and situations will arise when the price paid will exceed marginal utility.
If this condition is not fulfilled, the consumer will either purchase more or less. If he purchases more, the MU will fall and situations will arise when the price paid will exceed marginal utility.
To prevent negative utility, i.e. dissatisfaction, he will reduce his consumption and MU will go on increasing till price = marginal utility.
Illustration
To illustrate how the consumer equilibrium condition determines the quantity of goods 1 and 2 that the consumer demands, suppose that the price of good 1 is $2 per unit and the price of good 2 is $1 per unit.
Illustration
To illustrate how the consumer equilibrium condition determines the quantity of goods 1 and 2 that the consumer demands, suppose that the price of good 1 is $2 per unit and the price of good 2 is $1 per unit.
Suppose also that the consumer has a budget of $5. The marginal utility (MU) that the consumer receives from consuming 1 to 4 units of goods 1 and 2.
Here, marginal utility is measured in fictional units called utils, which serve to quantify the consumer's additional utility or satisfaction from consuming different quantities of goods 1 and 2.
The larger the number of utils, the greater is the consumer's marginal utility from consuming that unit of the good. For example, the consumer receives 24 utils from consuming the first unit of good 1, and the price of good 1 is $2.
Hence, the ratio of the marginal utility of the first unit of good 1 to the price of good 1 is 12.
Importance Of Consumer Equilibrium
It enables consumers to maximize his/her utility from the consumption of one or more commodities.
It helps the consumers to arrange the combination of two or more products based on consumer taste and preference for maximum utility.
What Are The Assumptions For Attaining Consumer Equilibrium In The Case Of Single Commodity?
In the case of a single commodity, let’s assume -
The purchase would be restricted only to a single commodity
The price of the commodity is already given in the market. The consumer only determines how much he needs to purchase at a given price.
Being a rational human being, the goal of a consumer is to maximize the consumer surplus which implies the surplus of utility he earns over his expenditures on the good at the point of purchase.
There are no limitations on the consumer expenditure i.e. he has sufficient money to buy whatever quantity he decides to buy at a given price.
What Are The Assumptions For Attaining Consumer Equilibrium In The Case Of Two Or More Commodities?
In the case of two or more commodities, let’s assume -
The consumer purchases only two goods i.e. A and B.
The price of both the goods is already given in the market. The consumer cannot change or influence the price of both goods. He can only decide how much to buy of these goods at a given price.
The consumer's income to be spent on these goods is already given and is constant.
The consumer is a rational human being and his goal is to maximize the (cardinal) amount of utility from his purchase and consumption of the goods subject to his constraints.
What Are The Conditions For Consumer Equilibrium In The Case Of Single Commodity?
In the case of a single commodity, the consumer equilibrium can be explained on the basis of the law of diminishing marginal utility.
Importance Of Consumer Equilibrium
It enables consumers to maximize his/her utility from the consumption of one or more commodities.
It helps the consumers to arrange the combination of two or more products based on consumer taste and preference for maximum utility.
What Are The Assumptions For Attaining Consumer Equilibrium In The Case Of Single Commodity?
In the case of a single commodity, let’s assume -
The purchase would be restricted only to a single commodity
The price of the commodity is already given in the market. The consumer only determines how much he needs to purchase at a given price.
Being a rational human being, the goal of a consumer is to maximize the consumer surplus which implies the surplus of utility he earns over his expenditures on the good at the point of purchase.
There are no limitations on the consumer expenditure i.e. he has sufficient money to buy whatever quantity he decides to buy at a given price.
What Are The Assumptions For Attaining Consumer Equilibrium In The Case Of Two Or More Commodities?
In the case of two or more commodities, let’s assume -
The consumer purchases only two goods i.e. A and B.
The price of both the goods is already given in the market. The consumer cannot change or influence the price of both goods. He can only decide how much to buy of these goods at a given price.
The consumer's income to be spent on these goods is already given and is constant.
The consumer is a rational human being and his goal is to maximize the (cardinal) amount of utility from his purchase and consumption of the goods subject to his constraints.
What Are The Conditions For Consumer Equilibrium In The Case Of Single Commodity?
In the case of a single commodity, the consumer equilibrium can be explained on the basis of the law of diminishing marginal utility.
The law of diminishing marginal utility states that as consumers consume more and more units of commodities, the marginal utility derived from each successive unit goes on diminishing. Therefore, how consumers decide how much to purchase depends on the following two factors.
To sum up what consumer equilibrium is? Consumer Equilibrium refers to the situation when a consumer is enjoying maximum satisfaction with limited income and has no propensity to change his way of existing expenditure.
- The price for each unit which he/she pays is given.
- The utility he/she gets.
To sum up what consumer equilibrium is? Consumer Equilibrium refers to the situation when a consumer is enjoying maximum satisfaction with limited income and has no propensity to change his way of existing expenditure.
The consumer has to pay a price for each unit of the commodity he consumes. So, he cannot purchase or consume an unlimited quantity of commodities.
In the case of a single commodity, the consumer attains an equilibrium position when the marginal utility of a good in terms of money gets equivalent to the price of that good.
Written by Dhruvi Solanki.
Note - This article has been authored exclusively by the writer and is being presented on Eat My News, which serves as a platform for the community to voice their perspectives. As an entity, Eat My News cannot be held liable for the content or its accuracy. The views expressed in this article solely pertain to the author or writer. For further queries about the article or its content you can contact this email address - dhruvisolanki198@gmail.com
Written by Dhruvi Solanki.
Note - This article has been authored exclusively by the writer and is being presented on Eat My News, which serves as a platform for the community to voice their perspectives. As an entity, Eat My News cannot be held liable for the content or its accuracy. The views expressed in this article solely pertain to the author or writer. For further queries about the article or its content you can contact this email address - dhruvisolanki198@gmail.com
.jpeg)
.jpeg)
.jpg&description=How Does Consumer Equilibrium Work And How Does It Impact The Economy?){kind=link}
0 Comments