consumers equilibrium with utility approach
TRANSCRIPT
Sum total of satisfaction that the consumer derives when a certain number of units of particular commodity are consumed
TU=F(Qx) or TU=∑MU
TOTAL UTILITYMARGINAL
UTILITY
It means addition to the total utility from the consumption of an one more unit of a good.
Mun = TUn-TUn-1
or, Mux = ∆Tux ∕ ∆Qx
Assumptions of the Utility Approach
• Utility can be cardinallymeasurable, i.e. can be expressed in exact units;
• Utility is measurable in monetaryterms;
• Consumer’s income is given;
• Prices of commodities are given & constant;
• Constant Marginal Utility of Money
As a consumer goes on coming more and more units of a commodity the additional benefit that he derives from the additional unit of a commodity goes on falling
MUx
Marginal
utility ( in
Rs.)
Quantity
Consumer EquilibriumIt refers to a situation under which aconsumer spends his entire income onpurchase of a good in such a manner thatgives him maximum satisfaction and he hasno tendency to change it.
Condition of Consumer Equilibrium
MUx \ Px =MUm
where,MUx = Marginal Utility of Product ‘x’
Px = Price of ‘x’
MUm = Marginal Utility of money
• MUx = MUm * Px ty of Money
Marginal Utility of the good = Utility of Price paid
UTILITY SCHEDULE OF A CONSUMER
Graphical Presentation
Consumer’s Equilibrium –One Commodity
Price, Utility
Quantity
CASE OF A SINGLE COMMODITY
For the consumer
Utility obtained−Benefit.
Price Payable−Cost.
A consumer will continue to consume additional units of a commodity till the point where his marginal utility (in terms of money ) is greater than or equal to the price of the commodity.
Being a rational consumer he wouldn’t pay more price for a product that gives him lesser sati
LOCATING CONSUMER EQUILIBRIUM
Questions for self-Evaluation
• Define utility.
• What is marginal utility ?
• Explain the law of marginal utility with the help of example.
• What does consumer equilibrium mean?
• State the condition of consumer’s equilibrium in the case of single commodity.