This approach uses the law of diminishing marginal utility to find the consumer's equilibrium point. It is divided into two cases:
A consumer is said to be in equilibrium when they maximize their total utility (satisfaction) given their income and the prices of goods. At this point, the consumer has no desire to change their spending pattern.
: The consumer gets more utility per rupee from Good X. They will buy more X and less Y. As consumption of X increases, MUxcap M cap U sub x falls until equality is restored. If
This approach assumes that satisfaction can be measured in numerical units called .
MRS stands for Marginal Rate of Substitution. It is the rate at which a consumer is willing to give up one good to obtain an additional unit of another good. consumer equilibrium class 11 notes free
In the case of a single good (say, apples), a consumer is in equilibrium when the of the good equals its Price (P) .
A consumer always prefers more of a good if it offers at least as much of other goods. 5. Summary Table Utility Approach Indifference Curve Approach Measurement Cardinal (Utils) Ordinal (Ranks) Key Law Law of Equi-Marginal Utility Diminishing MRS Equilibrium Condition
$$\fracMU_xP_x = \fracMU_yP_y = MU_m$$
Additional satisfaction gained from consuming one extra unit of a commodity. Formula: The Law of Diminishing Marginal Utility (DMU) This approach uses the law of diminishing marginal
The additional satisfaction gained from consuming one extra unit of a commodity.
Understand the Concept of Consumer Equilibrium & its Formula in Class 11
| Feature | Utility Approach | Indifference Curve Approach | | :--- | :--- | :--- | | | Cardinal (utils) | Ordinal (ranking) | | Assumption | MU diminishes | MRS diminishes | | Tools | MU, TU | IC, Budget Line | | Equality condition | ( MU_x/P_x = MU_y/P_y ) | ( MRS_xy = P_x/P_y ) | | Income effect | Assumes constant MU of money | Handles income effect via budget shifts |
| Approach | Condition | Meaning | | :--- | :--- | :--- | | | $MU_x = P_x$ | Marginal Utility equals Price. | | Two Commodity (Cardinal) | $\fracMU_xP_x = \fracMU_yP_y = MU_m$ | Marginal Utility per rupee is equal across all goods. | | Indifference Curve (Ordinal) | $MRS_xy = \fracP_xP_y$ | Slope of Indifference Curve equals Slope of Budget Line. | : The consumer gets more utility per rupee from Good X
Class 11 Consumer Equilibrium Notes | PDF | Utility - Scribd
Condition: MUxMUm=PxorMUtx=PxCondition: the fraction with numerator cap M cap U sub x and denominator cap M cap U sub m end-fraction equals cap P sub x space or space cap M cap U t sub x equals cap P sub x MUxcap M cap U sub x = Marginal Utility of good Pxcap P sub x = Price of good MUmcap M cap U sub m = Marginal Utility of Money (assumed to be constant) : The consumer buys more units. This lowers MUxcap M cap U sub x until it equals Pxcap P sub x : The consumer cuts down consumption. This raises MUxcap M cap U sub x until it equals Pxcap P sub x Case B: Two Commodities Case (Law of Equi-Marginal Utility) When spending income on two goods (
D. Condition for Equilibrium (Two-Commodity Case / Law of Equi-Marginal Utility) When a consumer spends their income on two goods ( ), equilibrium is achieved when:
