Consumer Equilibrium Class 11 Notes Free -

Realistically, a consumer spends money on many goods. For two goods (X and Y), equilibrium occurs when the ratio of marginal utility to price is equal for both goods, and the entire income is spent.

Consumer Equilibrium refers to a situation where a consumer derives maximum satisfaction from his limited income, given the prices of commodities. At this point, the consumer has no tendency to change his expenditure pattern.

Assumptions:

Q. A consumer consumes only two goods X and Y. The price of X is ₹5 per unit and the price of Y is ₹10 per unit. The consumer’s income is ₹100. The Marginal Utility schedule is as follows:

| Units | MU_x | MU_y | | :--- | :--- | :--- | | 1 | 50 | 80 | | 2 | 40 | 70 | | 3 | 30 | 60 | | 4 | 20 | 50 | | 5 | 10 | 40 | consumer equilibrium class 11 notes free

Find the equilibrium combination of X and Y.

Solution Hint: Find where ( MU_x / P_x = MU_y / P_y ).
Check Unit 3 of X (( 30/5 = 6 )) and Unit 3 of Y (( 60/10 = 6 )).
Answer: 3 units of X + 3 units of Y.
Budget check: ( (3\times5) + (3\times10) = 15+30 = 45 ) (within ₹100, so consumer saves the rest or buys other goods).

| Units Consumed | TU (Total) | MU (Marginal) | Trend | | :---: | :---: | :---: | :--- | | 1 | 10 | 10 | Rising TU | | 2 | 22 | 12 | Rising TU | | 3 | 30 | 8 | Rising but slow | | 4 | 34 | 4 | TU maximum (Saturation) | | 5 | 34 | 0 | TU constant | | 6 | 30 | -4 | TU falling |

Key Relationships:

Suppose a consumer buys two goods, Good X and Good Y, with a given income.

Conditions:

Explanation: The consumer will distribute his income such that the last rupee spent on each good yields the same utility.

| Units | MU(_x) | MU(_x)/P(_x) | MU(_y) | MU(_y)/P(_y) | | :--- | :--- | :--- | :--- | :--- | | 1 | 20 | 10 | 24 | 6 | | 2 | 18 | 9 | 22 | 5.5 | | 3 | 16 | 8 | 20 | 5 | | 4 | 14 | 7 | 18 | 4.5 | | 5 | 12 | 6 | 16 | 4 | Realistically, a consumer spends money on many goods

Finding Equilibrium:
We want MU(_x)/P(_x) = MU(_y)/P(_y) with total spending ≤ ₹22.

Assume ( P_x = ₹4 ), ( P_y = ₹2 ), Income = ₹24.

| Units | ( MU_x ) | ( MU_x / P_x ) | ( MU_y ) | ( MU_y / P_y ) | | :--- | :--- | :--- | :--- | :--- | | 1 | 20 | 5 | 16 | 8 | | 2 | 16 | 4 | 14 | 7 | | 3 | 12 | 3 | 12 | 6 | | 4 | 8 | 2 | 10 | 5 | | 5 | 4 | 1 | 8 | 4 |

Equilibrium combination: Buy 3 units of X (spend ₹12) and 6 units of Y (spend ₹12). At this point, ( MU_x / P_x = MU_y / P_y = 3 ). | Units Consumed | TU (Total) | MU