Explain the consumer equilibrium condition.

In case of single
commodity with the help of schedule.

Ans: Consumer will buy the unit of a commodity only if the benefit is greater than or at least
equal to the cost of commodity.

Consumer in consumption of single Commodity (say X) will be of equilibrium when marginal utility
(MUx) is equal to the price (Px ) paid for the commodity.

i.e. MUx = Px = MUm (marginal utility of money)

leave space for schedule and diagram

 If MUx is greater than price of x (MUx > px) then consumer is not at equilibrium and he goes
on buying because the benefit is greater than the cost. As he buys more MU falls because
the operation of law of DMU. When MU become equal to price then consumer get maximum
benefit and he is in equilibrium
 If MUx is less than Px (MUx <Px) then also the consumer is not at equilibrium. As he has to
reduce the consumption of commodity x to raise the total satisfaction till MU becomes equal
to the price.
 In the above schedule consumer will purchase upto 3 unit where (MUx=Px).
 The conclusion is that in the single commodity case a consumer make purchases only upto
the point where utility of last unit is equal to price of that unit.
Explain the conditions of consumer’s equilibrium in case of two
commodities?

Or

Concept of consumer equilibrium if the consumer is consuming two

commodities? What would be condition?

Ans: A consumer gets maximum satisfaction, when ratios of MU of two commodities and their
respective prices are equal and MU falls as consumption increases. It means, there are two
conditions to attain consumer’s equilibrium in case of two commodities.

(i) The ratios of Marginal Utility to price are same in case of both the goods.
We know, a consumer in consumption of single commodity (say, x) is at equilibrium
When = = MUM
Similarly, consumer consuming another commodity (say, y) will be at equilibrium
When = MUM
We get: = MUM
As marginal utility of money (MUM) is assumed to be constant, the above equilibrium
condition can be restated as:

 Suppose, . In this case, the consumer is getting more marginal

utility in case of good X as compared to Y. Therefore, he will buy more of X and
less of Y. This will lead to fall in MUX and rise in MUY. The consumer will
continue to buy more of X till .
 Suppose, . In this case, the consumer is getting more marginal
utility in case of good Y as compared to X. Therefore, he will buy more of Y and
less of X. This will lead to fall in MUY and rise in MUX. The consumer will
continue to buy more of Y till .
(ii) Mu falls as consumption increases: The second condition needed to attain consumer’s
equilibrium is that MU of a commodity must fall as more of it is consumed. If MU does
not fall as consumption increases, the consumer will end up buying only one good which
is unrealistic and consumer will never reach the equilibrium position.