Consumer Equilibrium | Condition Of Consumer Equilibrium | Class 11 Microeconomics | Ecoholics

Описание: What is Consumer Equilibrium?

A consumer is said to be in an equilibrium state when he feels that he cannot change his situation either by earning more or by spending more or by changing the number of things he buys. A rational consumer will purchase a commodity up to the point where the price of the commodity is equivalent to the marginal utility obtained from the thing. If this condition is not fulfilled, the consumer will either purchase more or less. If he purchases more, the MU will fall and situations will arise when the price paid will exceed marginal utility. In order to prevent negative utility, i.e. dissatisfaction, he will reduce his consumption and MU will go on increasing till price = marginal utility the other hand, if marginal utility is greater than the price paid, the consumer will enjoy additional satisfaction from the unit he has consumed beforehand. This will urge him to buy more and more units of commodity leading to successive falls in MU till it gets equal to price. Hence, by buying more or less quantity, a consumer will eventually reach a point where P= MU. Here, his total utility is maximum.

Conditions for Consumer Equilibrium
In the case of a single commodity, the consumer equilibrium can be explained on the basis of the law of diminishing marginal utility. The law of diminishing marginal utility states that as consumers consume more and more units of commodities, the marginal utility derived from each successive unit goes on diminishing. Therefore, how consumers decide how much to purchase depends on the following two factors.

Rationale Behind Conditions of Equilibrium Let us understand the rationale behind the conditions of equilibrium in detail.

Condition 1: MRSxy = Px/Py
Slope of IC Slope of Price Line
Or, IC and Price Line are tangent to each other

Let us take an illustration:

Let MRS 2: 1, indicating that the consumer is willing to sacrifice 2 units of Good-Y for 1 unit of Good-X.

Let Px/Py = 2: 1, indicating that the price of Good-X is 2 times the price of Good-Y. Or, that 1 unit of Good-X can be purchased in place of 2 units of Good-Y.

Thus, when MRSxy = 2:1 and = 2:1 (and both are equal) the Py consumer must be in a state of equilibrium, because the rate at which the consumer is willing to substitute X for Y is exactly equal to the rate at which the market allows X to be substituted for Y.

Condition 2: IC is Convex at the point of Equilibrium

At the point of equilibrium, IC must be convex to the origin. This is because, marginal utility derived from every commodity must decline as we consume more of it. If this law does not hold good, the consumer can never reach a point of stable equilibrium. Can equilibrium ever be reached when every additional unit of a commodity offers more and more satisfaction? Certainly not.

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