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CONSUMER EQUILIBRIUM

 A consumer is said to be in equilibrium, when


he is spending his given income on various
goods in such a way that maximises his
satisfaction
 MUx = Px
 Mux = marginal utility of commodity X
 Px = price of commodity x

units MU
1 10
2 8
3 6
4 4
 IF price of each units is RS. 4 ,CE will be
attained at the consumption of 4 units ,i.e
 Mux = Px
 4=4
 Unit consumed = 1,2,3,4.
 MU =12,10,8,6.
 & the price of the commodity is given RS.8
,then the CE will be attained at the
consumption of 3rd unit i.e 8 = 8
 A consumer is said to be in equilibrium when
he is spending his income on various goods
in such a way that maximises his satisfaction
 Mux/Px = Muy/Py
 A consumer attains equilibrium when he
spend his income in such a way that the ratio
of MU of commodity to its price is equal to
the ratio of marginal utility of other
commodity to its price
 Suppose a consumer has RS 30 with him
which he wants to spend on two goods X & Y
.
 The price of each unit of X is RS.4 & of Y is
RS.2
units mux Mux/px Muy Muy/py
1 80 80/4 = 20 40 40/2= 20
2 72 74/4 = 18 38 38/2 = 19
3 64 16 36 18
4 56 14 34 17
5 48 12 32 16
6 40 10 30 15
7 32 8 28 14
8 24 6 26 13
 The above indicates that 4 units of X CE of
RS.4/unit] & 7 unit of Y CE [RS.2 /Unit] will be
purchased
 {Px*qx} + {py*qy} = M
 4*4 + 2*7 = 30
 16 + 14 = 30
 Certain money income [ m]
 Only one commodity [ x ]
 Both have same utility
 Spent or retain
 Assumption 5 or 6
 MUx > Mum
 MUx > Px[MUm]
 x= Mum= 1 OR MUx /px[MUm] =1
E
P Px [ MUx]
R
I
C
E MUx

O
Q
QUANTITY
Income in such a manner that each
Goods yield the same utility
MUx = Px[ Mum] = 1
MUy = Py[ Mum] = 1
P3 E1

E2
P2

P1 E3

Q1 Q2 Q3
Q