consumers equilibrium one commodity and several commodity case

CONSUMERS EQUILIBRIUM:ONE COMMODITY AND SEVERAL COMMODITY CASE

Consumers equilibrium refers to a situation of maximum satisfaction while he is spending his given income across different goods. In other words a consumer is in equilibrium when he regards is actual behaviour as the best possible under the circumstances and Feels no necessity to change his behaviour as long as circumstances remain unchanged.

                      The consumer is in equilibrium when given his income and market prices he plans his expenditure on different goods and services in such a manner that he maximizes his total satisfaction.

Consumers Equilibrium:One commodity Case

how much of a commodity a consumer buys so that he maximizes his satisfaction and attains the point of equilibrium.purchase of a commodity depends on three factors:

1)prices of the commodity

2)Marginal and total utility of the commodity.

3) Marginal utility of money.it is assumed that marginal utility of money is constant.

    A consumer strikes his equlibrium when 

Px=MUx/MUm   where MUx=marginal utlity of x commodity,Px is the price of commodity and MUm is marginal utility of Money.

Consumers equilibrium:Two commodity Case

The consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee sent on each good is equal. In other words in two commodity case a consumer will be in equilibrium position when the marginal utility of money expenditure on each good is the same.So a consumer will be in equilibrium in respect of the purchase of two goods X and Y when:

 MUX/PX =MUY/PY =MUm

     

          it implies that a consumer is maximizing his satisfaction from commodities X and Y when a rupee worth of marginal utility is the same for commodities X and Y.It is the same as marginal utility of money.

(blog 8)