Equilibrium Class 11 Notes Free __top__ — Consumer

Marginal Rate of Substitution ( MRSxycap M cap R cap S sub x y end-sub ) equals Price Ratio (

The additional satisfaction gained from consuming one extra unit of a commodity.

Consumer’s equilibrium refers to a situation where a consumer spends their given income on one or more goods in such a way that they get and has no urge to change this level of consumption, given the prices of goods. Core Assumptions: Rationality: The consumer aims to maximize satisfaction. Constant Income: The consumer's money income is fixed.

A harmful commodity (like liquor) may have utility for an addict. Measurement of Utility Economists express utility through two primary approaches:

The budget line must be perfectly tangent to the highest possible indifference curve. At this point, the slope of the IC equals the slope of the budget line. consumer equilibrium class 11 notes free

: A consumer reaches equilibrium when the marginal utility ( MUcap M cap U ) of the product is equal to its price ( Condition : , the consumer buys more until MUcap M cap U falls to meet the price.

The Law of Diminishing Marginal Utility states that as more and more units of a commodity are consumed, the utility derived from each successive unit goes on decreasing.

MRS is the rate at which a consumer is willing to substitute Good while keeping total satisfaction constant.

| Units | MUx | MUy | MUx/Px | MUy/Py | | :--- | :--- | :--- | :--- | :--- | | 1 | 40 | 32 | 5 | 8 | | 2 | 36 | 28 | 4.5 | 7 | | 3 | 32 | 24 | 4 | 6 | | 4 | 28 | 20 | 3.5 | 5 | | 5 | 24 | 16 | 3 | 4 | | 6 | 20 | 12 | 2.5 | 3 | Marginal Rate of Substitution ( MRSxycap M cap

Before understanding equilibrium, you must understand utility. Utility is the want-satisfying power of a commodity. It is subjective and varies from person to person. Concepts of Utility

The Indifference Curve must be convex to the origin at the point of equilibrium. This ensures that the MRScap M cap R cap S is strictly diminishing. Disequilibrium Scenarios: If

It is the same as the two-commodity case: a consumer spreads their money over various goods in such a way that the marginal utility of the last dollar spent on each good is the same.

Consumption must be a continuous process without time gaps. Constant Income: The consumer's money income is fixed

: The additional satisfaction derived from consuming one more unit ( Law of Diminishing Marginal Utility (DMU)

Let's find where the ratios are equal at a lower consumption level. The next best match is:

To find the exact consumer equilibrium point, the Indifference Map (preferences) and the Budget Line (affordability) are combined. Conditions for Equilibrium:

If they crossed, it would violate the assumption of transitivity and consistency, implying a single combination could yield two different levels of satisfaction simultaneously. Monotonic Preferences