Consumer Equilibrium Class 11 Notes Free

  • Budget Line (Price Line): A straight line showing all possible combinations a consumer can buy with their income.

    • | Approach | Name | Key Concept | Applicability | | :--- | :--- | :--- | :--- | | 1 | Single Commodity Case | MU(_x) = P(_x) | One good only | | 2 | Two Commodity Case | ( \fracMU_xP_x = \fracMU_yP_y = MU_m ) | Multiple goods (real life) |

  • Marginal Utility (MU): The additional utility derived from consuming one more unit of a commodity.
  • Law of Diminishing Marginal Utility: As a consumer consumes more and more units of a commodity, the utility derived from each successive unit goes on diminishing.

    • A consumer consumes a good until the point where the satisfaction gained from spending the last rupee is equal to the satisfaction gained from keeping that rupee.

    Conditions:

  • Marginal Utility of Money is constant: The utility of money remains the same (assumed).

    • Explanation:

    | Feature | Utility Analysis (Cardinal) | Indifference Curve Analysis (Ordinal) | | :--- | :--- | :--- | | Founder | Alfred Marshall | Hicks & Allen | | Utility | Measurable in numbers (utils) | Not measurable; only comparable | | Main Tool | Marginal Utility (MU) | Indifference Curve (IC) & Budget Line |

    Before understanding equilibrium, you must master the concept of Utility. consumer equilibrium class 11 notes free

    Realistically, a consumer spends money on many goods. For two goods (X and Y), equilibrium occurs when the ratio of marginal utility to price is equal for both goods, and the entire income is spent.

    The Law: A consumer will buy apples until: Marginal Utility of Apple (in ₹) = Price of Apple

    Formula: [ \fracMU_xMU_m = P_x ] Where MU_m = Marginal Utility of Money (usually assumed = 1) Budget Line (Price Line): A straight line showing

    Conditions for Equilibrium:

    Example: