Consumer Equilibrium Class 11 Notes Free Upd -

As shown, at 3 units, the condition MUx = Px is met, which maximizes total utility.

This approach assumes utility can be measured in numerical units called Total Utility (TU):

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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

All possible combinations of two goods that a consumer can afford given their income and market prices. ( As shown, at 3 units, the condition MUx

The Law of Diminishing Marginal Utility states that as a consumer consumes more and more units of a commodity continuously, the marginal utility derived from each successive unit declines. Assumptions of the Law:

The Cardinal Approach suggests that utility can be measured in cardinal numbers ( ). It uses the concepts of Marginal Utility ( MUcap M cap U ) and Total Utility ( TUcap T cap U A. Total Utility ( TUcap T cap U ) and Marginal Utility ( MUcap M cap U Total Utility ( TUcap T cap U ( The Law of Diminishing Marginal Utility states

PxPythe fraction with numerator cap P sub x and denominator cap P sub y end-fraction

The ratios (4 and 5) are not equal yet. Let's try to find a combination that satisfies the equal MU condition:

| Term | Definition | | :--- | :--- | | | Sum of satisfaction from all units consumed. | | Marginal Utility | Additional utility from consuming one extra unit. | | Indifference Map | A family of indifference curves (higher IC = higher satisfaction). | | Budget Set | All bundles a consumer can afford. | | MRS (Marginal Rate of Substitution) | The amount of good Y a consumer is willing to give up for one more unit of X. |