What is the consumer equilibrium for indifference curve?

Consumer equilibrium refers to a situation, in which a consumer derives maximum satisfaction, with no intention to change it and subject to given prices and his given income. The point of maximum satisfaction is achieved by studying indifference map and budget line together.

What is consumer equilibrium?

Consumer’s equilibrium refers to the situation when a consumer is having maximum satisfaction with his limited income and has no tendency to change his way of existing expenditure. The consumer has to pay a price for each unit of the commodity. So he cannot buy or consume unlimited quantity.

What are the conditions for a consumer’s equilibrium can consumer’s equilibrium be arrived at with the help of the concept of indifference curves discuss?

From condition 1, we have known that consumer’s equilibrium exist at the point on indifference curve where budget line is tangent to the curve. Thus, at equilibrium point, slope of budget line is equal to slope of the indifference curve.

At what point equilibrium of the consumer can be achieved?

The consumer will be at equilibrium when marginal utility (in terms of money) equals the price paid for the commodity say ‘X’ i.e. MUx = PX. (Note that marginal utility in terms of money is obtained by dividing marginal utility in utils by marginal utility of one rupee).

When a consumer consumes two goods when he will be in equilibrium?

Suppose a consumer consumes only two goods, X and Y. They will attain equilibrium only if they allocate their given income on the purchase of X and Y in such a way that per rupee, the MU of both the products are equal and the consumer gets the maximum TU.

How will a change in consumer income affect his equilibrium?

As shown in Fig. 3.12, when a consumer’s income increases, his budget line shifts parallel and upward and when his income decreases the budget line shifts downward. As the income changes, a new equilibrium is established and the consumer moves from one equilibrium point to another. This is termed “income effect”.

How does a consumer attains equilibrium when he is spending his income on more than one commodities?

Finally, it can be concluded that a consumer in consumption of two commodities will be at equilibrium when he spends his limited income in such a way that the ratios of marginal utilities of two commodities and their respective prices are equal and MU falls as consumption increases.

What are the assumptions of consumer’s equilibrium?

The consumer is rational and seeks to maximize his satisfaction through the purchase of goods. The consumer consumes only two goods (X and Y). The goods are homogenous and perfectly divisible. Prices of the goods and income of the consumer are constant.

What is meant by the consumer’s equilibrium What is the condition of the consumer’s equilibrium under cardinal utility approach?

Definition: The Cardinal approach to Consumer Equilibrium posits that the consumer reaches his equilibrium when he derives the maximum satisfaction for given resources (money) and other conditions. Therefore, the consumer is said to be in equilibrium.

How will a consumer reach his equilibrium?

A consumer will be in equilibrium when he gets maximum satisfaction from the consumption of various commodities. However, in attaining maximum satisfaction, a consumer is constrained by his (a) fixed and limited money income, and (b) the prices of the commodities that he buys.

How the consumer strikes his equilibrium when he consumes only one commodity?

In addition to condition of “MU = Price”, one more condition is needed to attain consumer’s equilibrium: “MU falls as consumption increases”. However, this second condition is always implied because of operation of Law of DMU. So, a consumer in consumption of single commodity will be at equilibrium when MU = Price.

What is the consumer’s equilibrium explain the conditions assuming that the consumer consumes only two goods?

In case of two commodities, the consumer’s equilibrium is attained in accordance with the Law of Equi-Marginal Utility. It states that a consumer allocates his expenditure on two goods in such a manner that the utility derived from each additional unit of the rupee spent on each of the commodities is equal.