The consumer reaches equilibrium at the point where the . Conditions for IC Equilibrium: (Slope of IC = Slope of Budget Line) MRSxycap M cap R cap S sub x y end-sub
MUxPx=MUmorMUx=Px (assuming MUm=1)the fraction with numerator MU sub x and denominator cap P sub x end-fraction equals MU sub m space or space MU sub x equals cap P sub x space open paren assuming MU sub m equals 1 close paren The consumer buys more. As consumption rises, MUxMU sub x falls until it equals Pxcap P sub x If : The consumer reduces consumption. As consumption falls, MUxMU sub x rises until it equals Pxcap P sub x
: The consumer values Good X more than the market requires. They will substitute X for Y, causing to fall until it equals the price ratio. If consumer equilibrium class 11 notes free
Continuous consumption, standard unit sizes, and a rational consumer. 1. Cardinal Utility Approach (Utility Approach)
Condition for Equilibrium: MUXPX=MUMorMUX=PX×MUMCondition for Equilibrium: the fraction with numerator cap M cap U sub cap X and denominator cap P sub cap X end-fraction equals cap M cap U sub cap M space or space cap M cap U sub cap X equals cap P sub cap X cross cap M cap U sub cap M If we assume util for $1, the equilibrium condition simplifies to: MUX=PXcap M cap U sub cap X equals cap P sub cap X If The consumer reaches equilibrium at the point where the
It is a family or set of indifference curves. Higher indifference curves represent higher levels of satisfaction.
Condition 1: MRSxy=PxPy(Slope of IC=Slope of Budget Line)Condition 1: cap M cap R cap S sub x y end-sub equals the fraction with numerator cap P sub x and denominator cap P sub y end-fraction space open paren Slope of IC equals Slope of Budget Line close paren As consumption falls, MUxMU sub x rises until
As a consumer consumes more and more units of a commodity, the marginal utility derived from each successive unit goes on diminishing. C. Condition for Equilibrium (Single Commodity Case) A consumer reaches equilibrium when:
: The consumer gets more utility per rupee from Good Y. They will buy more of Y and less of X until equality is restored.