1. Explain consumers equilibrium, in case of Single commodity, with the help of utility schedule.
The law of D.M.V can be used to explain consumers equilibrium in case of a single commodity. Therefore, all the assumptions of Law of D.M.U are taken as assumptions of consumer's equilibrium in case of single commodity.
A consumer purchasing a single commodity will be at equilibrium, when he is buying such a quantity of that commodity which gives him maximum satisfaction. The number of units to be consumed of the given commodity by a consumer depends on 2 factors.
1. Price of the given commodity.
2. Expected utility from each successive unit.
To determine the equilibrium point, consumer compare the price of the given commodity with its utility. Being a rational consumer, he will be at equilibrium when marginal utility is equal to price paid for the commodity.
Consumer Equilibrium in case of Single Commodity.
To determine the equilibrium point, consumer compare the price of the given commodity with its utility. Being a rational consumer, he will be at equilibrium when marginal utility is equal to price paid for the commodity.
Units of x | Price (Px) | Marginal Utility | Marginal Utility in units | Difference maximum |
1 | 10 | 20 | 20 | 10 |
2 | 10 | 16 | 16 | 6 |
3 | 10 | 10 | 10 | 0 |
4 | 10 | 4 | 4 | -6 |
5 | 10 | 0 | 0 | -10 |
6 | 10 | -6 | -6 | -16 |
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