Chapter 2 Consumer Equilibrium

Q What do you mean by consumer equilibrium?

A Consumer equilibrium is a situation in which a person gets maximum satisfaction.

Q What do you mean by utility?
A Want satisfying power of any commodity is known as consumer equilibrium.

Q What is Total Utility?
A It is the sum total of utility derived from the consumption of all units of a commodity.

Q What is Marginal Utility?
A it refers to additional utility on account of the consumption of an unit of a commodity.

Q What is Budget line?
A It refers to attainable combinations of sets of two commodity at given prices of commodity and income of the consumer.

Q Explain the following :-
a) Indifference set
b) Indifference Curve
c) Indifference Map
A a) Indifference set is a set of two commodities which offers the consumer same level of satisfaction, so that he is indifferent between these combinations.
b) Indifference Curve is the diagrammatic presentation of an indifference set. it shows the set of two commodities that offers the consumer the same level of satisfaction, so that he is indifferent between these combinations.
c) Indifference Map refers to a set of indifference curve.

Q Explain relation between MU and TU.  [Very Important] 3/4 marks
   

Q Explain Consumer Equilibrium in case of single commodity or one commodity.  6 Marks, [V.I]
A Meaning of Consumer Equilibrium :- It is a situation in which a costumer is getting maximum satisfaction and he has no tendency to change his pattern of consumption.

Condition:- MUX = PX


Assumptions :-
a) Utility can be measured in terms of units.
b) Consumer is rational and wants maximum satisfaction.
c) Independent utility
d) MU of money is constant. MU of money is known as worth of a rupee.
e) Law of Diminishing Marginal Utility is applied here

Schedule:- Suppose a consumer is buying orange and the price of each unit of orange is rupee 4, hypothetical MU of orange is given as


Units
MUX
PUX
1
8
4
2
6
4
3               
4
4
4
2
4




 Explanation of schedule :- It is evident from the schedule that consumer will purchase four oranges and reaches an equilibrium position.
In this situation the position of the consumer equilibrium MU(in rupee) is equal to PX is satisfied.

Diagram:-








Q What changes does it make to the quation of consumer equilibrium when he decides to spend his income on two commodity rather than one?
                                                           OR
Explain consumer euilibrium in case of double commodity. Very important, 6 marks

Meaning of Consumer equilibrium:- It is a situation in which a consumer is satisfied and he has no tendency to change his pattern of consumption.

Condition:- MUx    =    MUY  =          MU                                                            
                 PX               PY

Assumption:-

a) Consumer is rational
b) Utility can be measured in term of money               
c) MUM is constant
e) Only standard unit of commodity are consumed by consumer
f) Law of Diminishing Marginal Utility applied here




Diagram Explanation :-

PP1 represents MU x commodity whereas QQ1 represents MU of Y commodity. It shows equality at A and A1. it is a ideal situation for the consumer where consumer will be in equilibrium
                                                   Now if he spends one less unit of X and one more unit of Y then he will not be in position of equilibrium then he will be at point B and B1 which is not a situation of equilibrium because he gets one less unit of commodity X and one more unit of commodity Y.




Q Explain consumer equilibrium with the help of IC (indifference curev) analysis. Very Important( 6 marks)


A Meaning of consumer equilibrium :- it a situation in which a consumer is getting maximum level of satisfaction from a commodity and has no tendency to bring change in pattern of consumption.


Condition :- Px   =  MRS
                   Py


Budget Line:-  It refers to the attainable combinations of a set of two goods at given prices of goods and income of the consumer.


Explanation of Diagram :- Q shows the equilibrium position where a consumer is getting maximum satisfaction from both the commodity, now if he moves to point T then he will get more satisfaction from good2 and less from Good 1 which is not a situation f equilibrium so he will remain at point Q where he is getting same level of satisfaction from both the commodities.

29 comments:

servesh said...

nice done

Unknown said...

cant u post many more questions so it will be a great help....................

Abdul Jabar Rustamani said...

Fatima are you student of economics?

Unknown said...

thank u

Unknown said...

farhana r u students of economics

Unknown said...

helpful

জাবির said...

thanx.......

Unknown said...

very nice

TRAILOR 4 MATINEE said...

very helpful !
can u create it for all other chapters too?

Unknown said...

Its too good

Unknown said...

Post more ques about new chapters

Unknown said...

Great knOwledge about ecOnOmics.
Hitherto i'm studying in this subject.

Unknown said...

very helpful
tysm

Unknown said...

thanx...u ar really feeding us

Unknown said...

will never understand this, no matter how hard I study I jus don't get it

Nizakat Shah said...

very helpful

Unknown said...

really nice and easy. i think dis time i will not fail in exams. plz upload economics 2n year, civics 2nd year, civics 1st year.

Unknown said...

Cant this be given for all chapers????? It would be very helpful....

Unknown said...

Suppose I have R5000 to spend on trousers and shirts; the price of trousers is R500 and shirts is R312.50 each.
1. use information and calculate consumer equilibrium for me.
2. use a diagram and graphically illustrate consumer equilibrium. Remember to incorporate indifference curves and a budget line .

Unknown said...

Suppose I have R5000 to spend on trousers and shirts; the price of trousers is R500 and shirts is R312.50 each.
1. use information and calculate consumer equilibrium for me.
2. use a diagram and graphically illustrate consumer equilibrium. Remember to incorporate indifference curves and a budget line .

Unknown said...

Nice notes

Unknown said...

Nice notes

Young Franky said...

very Helpful

Unknown said...

thnxs it was very helpful

Unknown said...

Thanks

Unknown said...

Thank you i was in need of this chapter and you helped me..

Unknown said...

Thanks you.
I am a MBA program student.

Unknown said...

Thanks you.
I am a MBA program student.

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