| Units | MU of Samosa (utils) | MU of Chai (utils) | MU Sam/Price | MU Chai/Price | |-------|----------------------|--------------------|--------------|----------------| | 1st | 30 | 20 | 30/10 = 3 | 20/5 = 4 | | 2nd | 20 | 15 | 20/10 = 2 | 15/5 = 3 | | 3rd | 10 | 10 | 10/10 = 1 | 10/5 = 2 |
As a consumer consumes more units of a commodity, the marginal utility derived from each successive unit declines. 2. Approaches to Consumer Equilibrium A. Cardinal Utility Approach (Utility is Measurable)
A consumer reaches equilibrium when the marginal utility of money spent on a good equals the price of the good. (When utility is measured in money) Alternatively: If consumer equilibrium class 11 notes free
Two different curves cannot represent the same level of satisfaction. Marginal Rate of Substitution (MRS)
| Units of Apple | MU (utils) | Price (₹) | Decision | | :--- | :--- | :--- | :--- | | 1 | 10 | 5 | MU > P → Buy | | 2 | 8 | 5 | MU > P → Buy | | 3 | | 5 | MU = P → STOP (Equilibrium) | | 4 | 2 | 5 | MU < P → Don’t buy | | Units | MU of Samosa (utils) |
The ratio of prices of the two goods (
(Answers: 3 – No, MU < P, so buy less. 4 – Consumer allocates income so that last rupee spent on each good gives equal MU. 5 – Utility is subjective, not measurable in numbers.) Cardinal Utility Approach (Utility is Measurable) A consumer
A consumer attains equilibrium under the ordinal approach when the following two conditions are met simultaneously:
Consumer equilibrium refers to a situation where a consumer spends their given income on one or more goods in such a way that they get maximum satisfaction and have no tendency to change their current expenditure pattern. 2. The Concept of Utility
The consumer reaches equilibrium where the budget line is tangent to the highest possible indifference curve. (Slope of IC = Slope of Budget Line)