class 12 economics Consumer's equilibrium

 Consumer's equilibrium..........short and easy notes for board exam.

1. What do mean by consumer's equilibrium?
>Consumer's equilibrium is the process in which consumer choose or select those goods from which he can attain maximum satisfaction with his limited resources.
                                  A consumer is said to be in equilibrium still he does not change his method of Expenditure in present condition.

2. What do you mean by utility? what are its characteristics?
> want satisfying power of a commodity is called utility.
Following are its characteristics;

• It is a psychological phenomenon.
• It not affected by moral duty.
• It is related to expected satisfaction of the human.
• It differ from man to man, place to place and time to time.

3. What do you mean by marginal utility?

> increase in total utility by consuming one additional unit of a commodity is called marginal utility.

   MU = TUn - TUn-1

e,g. From the consumption of 10 unit, we get 150 util and additional one unit we get 160 util. Therefore, 

Marginal Utility = 160-150 = 10

4. What do you mean by total utility?

> The sum of total marginal utility is called total utility.

    TU = ΣMU

5. Write the relation between total utility and marginal utility.

> following are the relation between total utility and marginal utility;

• Both total utility and marginal utility is positive in the beginning. 
• Marginal utility is positive, total utility increases with decreasing rate.
• Marginal utility decreases continuously.
• Total utility is maximum when marginal utility is zero, this is called point of saturation.
• When marginal utility become negative, total utility start decreasing.

The relation between both also explain from the following table;

Graphical representation; 

6. What do you mean by law of diminishing marginal utility? What are its assumptions?

> law of diminishing marginal utility is also known as law of satisfaction. It is an important law of consumption, which is universally accepted. It is firstly derived by an Austrian economist 'H.H. Gossen', and its named after him Gossen first law.

                      As per this law, as we utilise a commodity continuously, the marginal utility obtained from use of every additional unit decreases. It happens in all goods and services. This law is called fundamental law of satisfaction.

Following are its assumptions;

• Consumption of goods should be continuous.
• Size of consumption goods should be proper.
• All unit of consumption goods should be homogeneous.
• Income of consumers should be constant.
• Price of substitute goods should be stable.
• The consumer should not be changed in his taste, fashion, interest,etc.
• Only one want should be studied at a particular time.

Tabular representation;

Diagrammatic representation;

7. What do you mean by indifference curve? What are its characteristics? What are its assumptions?

> Indifference curve explain the consumer behaviour related with the combination of two goods, that can gives same level of satisfaction to the individual.

Tabular representation;

Graphical representation;

   

Following are its characteristics;

• Indifference curve slopes downward from left to right.
• Indifference curve shows higher level of satisfaction at Higher point.
• Two indifference curve for same consumer never cut each other.
• Indifference curve never touch axis.
• Indifference curve convex to the origin.
• Indifference curve need not be parallel.

Following are its assumptions;

• The consumer is a rational.
• Consumer gets maximum satisfaction from limited resources.
• Scale of preference ranked in term of indifference curve.
• Weak ordering

8. Explain budget Line or price line.

> A budget line is a line with shows all possible combination of two goods that a consumer can buy with his given income and price of commodity.

                       e.g.  A consumer has rupees 500, and the price of goods X is rupees 50 and the price of goods Y is rupees 100.

Following are the all possible combinations;

Consumer can buy, if entire income is spent on goods X and goods Y. There is no alternative to spend the amount.

The slope of budget line = -Px/Py 

The equation of budget line is;

      M = Px . X + Py . Y

M = Total income

Px = Price of X

X = quantity of X

Py = Price of Y

Y = quantity of Y

1. POINTS;
2. First law of Gossen is also known as law of diminishing marginal utility.
3. Law of Gossen is also known as equi-marginal utility.
4. Slope of budget Line or price line = -Px/Py
5. When MU is positive, TU increases.
6. When MU is zero, TU is maximum.
7. When MU is negative, TU declined.
8. MU = ▲TU/▲Q,  Q = quantity.
9. Indifference curve is convex to the origin.
10. Utility is psychological phenomenon.
11. Utility can be measured by money.
12. Indifference curve slopes from left to right.
13. Consumer equilibrium takes at a time, where MU = Price.
14. According to 'Marshall' utility of commodity can be measured by money or Cardinal number.
15. Utility means wants satisfying power of a commodity.
16. Total utility is the sum of marginal utility.

     THE END