Consumer Equilibirum.

<Consumer Equilibrium
Concept of Utility: -
The term UTILITY refers to that quality of a commodity Or service which satisfy human wants.
Wants satisfying power of a good is called utility.
Total utility: - It is the sum total of utility derived from the consumption of all the units of a commodity.
“Total utility refers to the entire amount of satisfaction obtained from the consuming various quantities of a commodities.”
TU X = f (Q X)
Total Utility:-
It refers to additional utility derive from the consumption of an additional unit of a commodity.
“Marginal utility is the increase in total utility which results from a unit increase in consumption.”
Total utility and marginal utility schedule: -
Unit of Commodity Total Utility Marginal Utility
0 0 -
1 6 6-0 = 6
2 10 10-6 = 4
3 12 12-10 = 2
4 12 12-12 = 0
5 10 12-10 = -2



Consumer’s equilibrium:- A consumer will be in equilibrium when he maximize his satisfaction with given income and price OR a consumer said to be in equilibrium when he gets maximum satisfaction out of his limited income and he has no tendency to change his choices.
ASSUMPTIONS: -
1. Consumer is rational.
2. Marginal utility of money is constant.
3. Utility can be measured in cardinal.
4. There is independence of utility.
5. Income of the consumer remains constant.
6. The tastes of the consumer remain constant.
Equilibrium in case of one commodity follows three conditions: -
1. Price of the commodity.
2. MU and T U of the commodity.
3. M U of money.
A consumer will be MU X / P X = MU M









Consumer’s equilibrium with two commodities: -
Suppose consumer is buying two commodities X and Y with available income.
Think that consumer is buying X commodity than he will be in equilibrium : -






MU X/P x =MU M
Like wise ,for commodity – Y, Consumer will be in equilibrium when:
MU Y/P y= MU M
Now think that consumer buy X and Y commodity than he will be in equilibrium: -
MU X/P X = MU Y/P Y= MU M
A DIAGRAMATIC PRESENTAION:-





WE know that consumer will be in equilibrium when:-
MU X/PX = MU Y/PY= MU M,


INDIFFERENCE COVERS ANALYSIS AND CONSUMER EQUILIBRIUM :-
Meaning of Indifference cover analysis:-
Indifference Curve is that curve which shows different combination of goods that yield the same level of satisfaction or utility to the consumer.
A consumer will be in equilibrium where: -
(i) An I C is tangent to the budget line.
(ii) Tangency between IC and Budget line is in convex shape.
(iii) The consumer is assumed to be rational.
(iv) Utility is ordinal concept.
(v) Diminishing MRS
(vi) Consistency of Choice.
(vii) Transitivity of choice.
(viii) Monotonic Preference.
Properties or features of I C
(i) Downward sloping to the right.
(ii) Convex to the Origin.
Budget line: - Budget line is that line which explains the different possible combination which a market offers to a consumer on a given income and given prices.
A consumer will be in equilibrium where: -
(i) An I C is tangent to the budget line.
(ii) Tangency between IC and Budget line is in convex shape.
Which is explaining with the help of following diagram:-











A consumer is in equilibrium at point E on IC 2 curve. He is getting maximum satisfaction at point E.