Important Free Online Class 12 Economics Consumers Equilibrium Notes
Class 12 Economics Consumers Equilibrium Notes at Takshila Learning are one of the simplest, easiest and most convenient options to the students these days to gain knowledge at their doorstep. These Economics Online Classes along with Economics Notes make you learn at your own pace and at a time convenient to you. CBSE Class 12 Economics Classes have been recorded in an easy way with complete graphs and tables to understand concept.
We are also bringing to you some theoretical knowledge in the form of these blogs and write ups. One of the blog carries detailed information about “Consumer Equilibrium through Utility Approach”.
A consumer is said to be in equilibrium when he spends his given income such that he attains maximum satisfaction and there is no urge to change.
There are two approaches through which a consumer attains equilibrium:
- UTILITY APPROACH
- INDIFFERENCE CURVE APPROACH
CONSUMER EQUILIBRIUM THROUGH UTILITY APPROACH
The utility approach was given by Marshall. As per Marshall, utility can be measured numerically like 1, 2, 3 in simple units called UTILS and expressed in total and marginal utility. This is called CARDINAL MEASURE OF UTILITY.
A consumer may attain equilibrium in case of consumption of a single commodity as well as when he is consuming two commodities available at same and different prices. The different cases to be considered under the utility approach are described below.
CONSUMER EQUILIBRIUM IN CASE OF SINGLE COMMODITY
The condition for a consumer to attain equilibrium in case of single commodity is
MU in terms of money = Price of the commodity
MU of a product
———————- = Price of commodity
MU of a Rupee
Where, MU is marginal utility
A consumer will buy a product only when he derives satisfaction which is either equal to or more than the price of the product. To compare the utility of the product to its price, it is important to express the utility derived in terms of money. This can be done by obtaining a ratio of marginal utility of the product to marginal utility of a rupee. MU of a Rupee may be defined as the extra utility derived when a rupee is spent on other available goods in general.
In the table below, consumer purchases apples priced at Re.1 per unit. The marginal utility of a rupee is assumed to be 2 utils. The table below shows that the consumer derives 10 utils of satisfaction on the consumption of 1 apple which is equal to 5 utils when expressed in terms of money. When he further consumes the apples, the marginal utility goes on diminishing according to the law of diminishing marginal utility. On consuming the 4th unit of apple, the MU in terms of money is equal to the price of the commodity (i.e 1). This is the stage where he attains equilibrium. He does not consume any more apples because any further consumption of apples will give lesser utility to the consumer than the price of the commodity.
|Units of apples consumed||Marginal Utility|
|MU in terms of money (MUx/MUre)||Price of apples|
In case of two commodities, the condition for equilibrium attainment is
MUx / Px = MUy / Py = MU of money
Where, MUx is marginal utility of good X
Px is price of good X
MUy is marginal utility of good Y
Py is price of good Y
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