Consumers equilibrium

Two commodities
CONSUMER’S EQUILIBRIUM FOR MORE THAN TWO GOODS

 Equilibrium condition for more than two goods:

MUx MUy MUz

 = = M. U. M and so forth
Px Py Pz
 CONSUMERS EQUILIBRIUM-
under two commodities

 Suppose a consumer consumes only two goods.

 Let these goods be X and Y
 Prices Px and Py.
 Consumer attains equilibrium only when the following condition is satisfied:

MU X MU Y
  MUM
PX PY
MUx = Marginal utility of good X
MUy = Marginal utility of a good Y
Px = Price of good X
Py = Price of good Y
M . U. M = Marginal utility of money

The assumption of consumer’s equilibrium for one good is extended to two

good also.
Consumer’s Equilibrium in Case of Two
Commodities schedule:
UNIT MU of MU of
MU of
commodity ‘y’
commodity(in utils)
16
commodity
‘x’ 12 ‘y’
3 (in utils) (in utils)
4
5
1 20 16
2 14 12
3 12 8
4 7 5
5 5 3
Diagram
CONSUMER’S EQUILIBRIUM TWO GOODS…
 What happens when
M Ux M Uy

Px Py
Suppose a consumer has Rs. 20 with him which he wants to spend on two
goods X and Y. The price of each unit of X is Rs.5 and Y Is Rs.2

Unit MUx MU/Px MUy Muy/P

s y
1 50 10(50/5) 24 12(24/
2)
2 40 8 22 11

3 30 6 20 10

4 20 4 18 9

5 10 2 16 8

6 5 1 14 7
 1 STCombinations
 2 unit X+ 5 unit Y
 2*5=10 + 5*2=10 =20
 2ND Comination
 1 unit X+ 3unit Y
 1*5=5 + 3*2=6 =11
Consumers equilibrium

 Consumer will be in equilibrium when he purchase 2 units of good X and 5 units of good Y. This can
be stated in the following ways:
 From the table

(1) MU X 40 MU X 16
(1)  8 and ( 2)  8
PX 5 PY 2
MUx MUy
Thus the condition  is satisfied
Px Py

(2) MU X  MU Y = MUM 40 = 16 = 8
PY PY 5 2

MUx MUy MUx Px 40 5

(3)  or  =   2.5
Px Py MUy Py 16 2

4) MUx = MUy (when the price of both the goods are same)