Consumer Equilibrium is a state of balance where a consumer derives maximum satisfaction
for the Cardinal Utility formula
This approach assumes that utility (satisfaction) can be measured in hypothetical units called . consumer equilibrium class 11 notes free
When a consumer spends their entire income on just , determining equilibrium is straightforward. The consumer compares the satisfaction they get from the good with the price they pay for it. Assumptions: The consumer's income is fixed. The price of the good is constant. The utility can be measured in cardinal numbers (utils). The Condition for Equilibrium Consumer Equilibrium is a state of balance where
MRSXY=PXPYcap M cap R cap S sub cap X cap Y end-sub equals the fraction with numerator cap P sub cap X and denominator cap P sub cap Y end-fraction Assumptions: The consumer's income is fixed
The budget line must be perfectly tangent to the highest possible indifference curve. At this point, the slope of the IC equals the slope of the budget line.
Consumer Equilibrium Class 11 Notes: Free Comprehensive Guide