Question
How does a consumer reach equilibrium position when he is buying only one commodity? Explain with the help of marginal utility schedule.
✓
Answer
Now, we address the basic question of this chapter: How much of a commodity a consumer buys so that he maximises his satisfaction and attains the point of equilibrium? This is discussed with reference to two different situations:
(i) when only one commodity is consumed, and
(ii) when two or more commodities are consumed.
Following is brief description of both the situations.
Consumer's Equilibrium: One Commodity Case
Purchase of a commodity by a consumer depends on three factors:
(i) Price of the commodity.
(ii) Marginal (and total) utility of the commodity.
(iii) Marginal utility of money.
Assumptions for the illustration given below:
Let marginal utility of money for the consumer = 2 utils (referring to the utility he expects to receive when he spends ₹1).
Let X be the commodity he intends to buy.
Let $P_X$ (Price of X) = ₹4 per unit.
Marginal Utility Schedule of X is taken to be as follows:
Calculation of MU in terms of Rupees, given Marginal Utility Schedule of Commodity-X
Using the scale that 2 utils₹1, MU in terms of rupees is calculated as shown above.
Now comes the basic question: How many units of X the consumer will purchase to be in a state of equilibrium?
Continuing like this, he will stop buying X, only when:
$MU _{ x }$(in terms of rupees) = $P _{ X }$
It occurs when the consumer buys 4 units of commodity-X. Here,
$MU _{ x }$(in terms of rupees) = $P _{ X }$= ₹4
(i) when only one commodity is consumed, and
(ii) when two or more commodities are consumed.
Following is brief description of both the situations.
Consumer's Equilibrium: One Commodity Case
Purchase of a commodity by a consumer depends on three factors:
(i) Price of the commodity.
(ii) Marginal (and total) utility of the commodity.
(iii) Marginal utility of money.
Assumptions for the illustration given below:
Let marginal utility of money for the consumer = 2 utils (referring to the utility he expects to receive when he spends ₹1).
Let X be the commodity he intends to buy.
Let $P_X$ (Price of X) = ₹4 per unit.
Marginal Utility Schedule of X is taken to be as follows:
Calculation of MU in terms of Rupees, given Marginal Utility Schedule of Commodity-X
Using the scale that 2 utils₹1, MU in terms of rupees is calculated as shown above.
Now comes the basic question: How many units of X the consumer will purchase to be in a state of equilibrium?
Continuing like this, he will stop buying X, only when:
$MU _{ x }$(in terms of rupees) = $P _{ X }$
It occurs when the consumer buys 4 units of commodity-X. Here,
$MU _{ x }$(in terms of rupees) = $P _{ X }$= ₹4
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