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[ \fracMU_xP_x = \fracMU_yP_y = MU_\textmoney ]
represents the worth of a rupee to the consumer. It is the extra satisfaction a consumer gets by spending an additional unit of money. 5. Indifference Curve (Ordinal Approach)
The consumer reaches equilibrium where the budget line is tangent to the highest possible indifference curve. (Slope of IC = Slope of 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.
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 (
| Approach | Condition | Formula | When to use | | :--- | :--- | :--- | :--- | | Single good | ( MU = P ) | ( MU_x = P_x ) | One commodity case | | Two goods (Utility) | Equi-marginal | ( MU_x/P_x = MU_y/P_y ) | Measurable utility | | Ordinal (IC) | Tangency | ( MRS = P_x/P_y ) | Realistic preferences | Many premium websites offer these notes at a
) reaches equilibrium when the marginal utility of the good (in terms of money) equals its market price.
B. Consumer Equilibrium: Two Commodity Case (Equi-Marginal Utility) When a consumer spends their income on two goods (
Based on the idea that utility can be measured in numerical units called "utils". Ordinal Utility Approach (Indifference Curve Analysis): consumer equilibrium class 11 notes free
MRSXY=PXPYcap M cap R cap S sub cap X cap Y end-sub equals the fraction with numerator cap P sub cap X and denominator cap P sub cap Y end-fraction
A consumer strikes an equilibrium when the marginal utility of a commodity in terms of money equals its price.
All possible combinations of two goods that a consumer can afford given their income and market prices. (