Important Notes for Free Online Class 12 Economics Consumers Equilibrium

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Important Notes for Free Online Class 12
Economics Consumers Equilibrium
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Important Notes for Free Online Class 12
Economics Consumers Equilibrium

• Economics online classes at Takshila Learning are
  one of the simplest, easiest and most convenient
  options to the students these days to gain
  knowledge at their doorstep. These Economics
  Online Classes along with Economics Notes make
  you learn at your own pace and at a time
  convenient to you. CBSE Class 12 Economics
  Classes have been recorded in an easy way with
  complete graphs and tables to understand concept.
• We are also bringing to you some theoretical
  knowledge in the form of these blogs and write
  ups. One of the blog carries detailed information
  about consumer equilibrium through utility
  approach
•  
• CONSUMER EQUILIBRIUM
• A consumer is said to be in equilibrium when he
  spends his given income such that he attains
  maximum satisfaction and there is no urge to
  change.
•  
• There are two approaches through which a consumer
  attains equilibrium
• UTILITY APPROACH
• INDIFFERENCE CURVE APPROACH

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Important Notes for Free Online Class 12
Economics Consumers Equilibrium

• CONSUMER EQUILIBRIUM THROUGH UTILITY APPROACH
• The utility approach was given by Marshall. As
  per Marshall, utility can be measured numerically
  like 1, 2, 3 in simple units called UTILS and
  expressed in total and marginal utility. This is
  called CARDINAL MEASURE OF UTILITY.
• A consumer may attain equilibrium in case of
  consumption of a single commodity as well as when
  he is consuming two commodities available at same
  and different prices. The different cases to be
  considered under the utility approach are
  described below.
•  
• CONSUMER EQUILIBRIUM IN CASE OF SINGLE COMMODITY
• The condition for a consumer to attain
  equilibrium in case of single commodity is
• MU in terms of money Price of the commodity
• OR
• MU of a product
• 
  ---------------------- Price of commodity
• 
  MU of a Rupee

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Important Notes for Free Online Class 12
Economics Consumers Equilibrium

• MU of a Rupee
• Where, MU is marginal utility
• A consumer will buy a product only when he
  derives satisfaction which is either equal to or
  more than the price of the product. To compare
  the utility of the product to its price, it is
  important to express the utility derived in terms
  of money. This can be done by obtaining a ratio
  of marginal utility of the product to marginal
  utility of a rupee. MU of a Rupee may be defined
  as the extra utility derived when a rupee is
  spent on other available goods in general.
• In the table below, consumer purchases apples
  priced at Re.1 per unit. The marginal utility of
  a rupee is assumed to be 2 utils. The table below
  shows that the consumer derives 10 utils of
  satisfaction on the consumption of 1 apple which
  is equal to 5 utils when expressed in terms of
  money. When he further consumes the apples, the
  marginal utility goes on diminishing according to
  the law of diminishing marginal utility. On
  consuming the 4th unit of apple, the MU in terms
  of money is equal to the price of the commodity
  (i.e 1). This is the stage where he attains
  equilibrium. He does not consume any more apples
  because any further consumption of apples will
  give lesser utility to the consumer than the
  price of the commodity.

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Important Notes for Free Online Class 12
Economics Consumers Equilibrium
Units of apples consumed Marginal Utility (MU) MU in terms of money (MUx/MUre) Price of apples
0 - - 0
1 10 5 1
2 8 4 1
3 5 2.5 1
4 2 1 1
5 1 0.5 1
6 0 0 1
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Important Notes for Free Online Class 12
Economics Consumers Equilibrium

• In case of two commodities, the condition for
  equilibrium attainment is
• MUx / Px MUy / Py MU of money
•  
• Where, MUx is marginal utility of good X
• Px is price of good X
• MUy is marginal utility of good Y
• Py is price of good Y
•  
• To learn more about Consumer Equilibrium through
  utility approach, enroll to Economics Online
  Classes with talshilalearning. Click here for
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