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    CH3 Consumer Equilibrium-Utility Analysis

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    Bhoomi Kachhia
    A consumer is in a state of equilibrium when they maximize satisfaction from consuming goods, given their income. There are two main conditions for consumer equilibrium: 1) For a single good, the rupee worth of marginal utility from consuming one more unit of that good equals the rupee worth desired by the consumer. 2) For two goods, the rupee worth of marginal utility from consuming one more unit of either good equals the rupee worth desired by the consumer. Additionally, the marginal utility of money remains constant.

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    CH3 Consumer Equilibrium-Utility Analysis

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    Bhoomi Kachhia
    23 views3 pages
    A consumer is in a state of equilibrium when they maximize satisfaction from consuming goods, given their income. There are two main conditions for consumer equilibrium: 1) For a single good, the rupee worth of marginal utility from consuming one more unit of that good equals the rupee worth desired by the consumer. 2) For two goods, the rupee worth of marginal utility from consuming one more unit of either good equals the rupee worth desired by the consumer. Additionally, the marginal utility of money remains constant.

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    CH3 CONSUMER EQUILIBRIUM-UTILITY ANALYSIS

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    A consumer is in a state of equilibrium when they maximize satisfaction from consuming goods, given their income. There are two main conditions for consumer equilibrium: 1) For a single good, the rupee worth of marginal utility from consuming one more unit of that good equals the rupee worth desired by the consumer. 2) For two goods, the rupee worth of marginal utility from consuming one more unit of either good equals the rupee worth desired by the consumer. Additionally, the marginal utility of money remains constant.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    23 views3 pages

    CH3 Consumer Equilibrium-Utility Analysis

    Uploaded by

    Bhoomi Kachhia
    A consumer is in a state of equilibrium when they maximize satisfaction from consuming goods, given their income. There are two main conditions for consumer equilibrium: 1) For a single good, the rupee worth of marginal utility from consuming one more unit of that good equals the rupee worth desired by the consumer. 2) For two goods, the rupee worth of marginal utility from consuming one more unit of either good equals the rupee worth desired by the consumer. Additionally, the marginal utility of money remains constant.

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    XI ECONOMICS

    MICROECONOMICS
    CH: CONSUMER EQUILIBRIUM -UTILITY ANALYSIS

    Question 1. Who is a Consumer?

    Answer: A consumer is an economic agent who uses goods and services for the
    direct satisfaction of his wants. Generally, consumers consist of individuals,
    institutions or households. Consumer behaviour refers to the way in which
    consumers spend their income.
    Question 2. Define utility.
    Answer: Utility is the want satisfying power of a commodity.
    Question 3 . Differentiate between Cardinal and Ordinal measurement of utility.
    Answer: Alfred Marshall believes that we can measure satisfaction in terms of cardinal
    numbers or units like 1,2 and 3. This is known as Cardinal measurement of utility.
    J.R Hicks believes that satisfaction can only be ranked as high or low in terms of units
    or utils. This is known as Ordinal measurement of utility.
    Question 4 . Explain the relation between Total utility and Marginal utility.
    Answer: Total utility (TU) is the sum of all the utilities derived from consumption of all
    the units of a particular commodity.
    Marginal utility (MU) is the additional utility on account of consumption of an additional
    unit of a commodity.
    The relation between Total utility and Marginal utility can be explained with the help of
    the following:
    Quantity Total utility Marginal utility
    (Units)
    0 0 -----
    1 8 8-0=8
    2 14 14-6=8
    3 18 18-14=4
    4 20 20-18=2
    5 20 20-20=0
    6 18 18-20=-2

    ( Attach graph)
    The relation between Total utility and Marginal utility can be summarized as:
    i) TU= ∑ MU
    ii) TU increases so long as MU is positive.
    iii) When MU is zero, TU is maximum.
    iv) When MU is negative, TU starts diminishing.

    Question 5. What is the meaning of Consumer’s Equilibrium?


    Answer: A consumer is in a state of equilibrium when he maximises his satisfaction by
    spending his given income on different goods and services.
    Question 6. State the conditions of Consumer’s Equilibrium using utility analysis.
    Answer: The conditions of Consumer’s Equilibrium using utility analysis are specified
    separately for one commodity case and two commodity case as:

    one commodity case two commodity case


    The rupee worth of marginal utility The rupee worth of marginal utility derived
    actually received is exactly equal to the from either commodity is exactly equal to
    rupee worth of satisfaction as the rupee worth of satisfaction as
    desired by the consumer. desired by the consumer.

    Marginal utility of money remains Marginal utility of money remains constant


    constant(it is the measuring rod of
    rupee worth of satisfaction)
    Law of Diminishing marginal utility Law of Diminishing marginal utility holds
    holds good. good.

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