Consumer Equilibrium Class 11 Notes Free !exclusive! Online

The ordinal approach rejects numerical utility, opting instead to study consumer preferences using Indifference Curves. What is an Indifference Curve (IC)?

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.

A consumer is in equilibrium when the Marginal Utility (in terms of money) equals the Price of the good. (Where MUxcap M cap U sub x is Marginal Utility of good X, Pxcap P sub x is Price, and MUmcap M cap U sub m is Marginal Utility of Money). : Consumer keeps buying more. : Consumer reduces consumption.

MUxPx=MUyPy=MUmthe fraction with numerator cap M cap U sub x and denominator cap P sub x end-fraction equals the fraction with numerator cap M cap U sub y and denominator cap P sub y end-fraction equals cap M cap U sub m consumer equilibrium class 11 notes free

The consumer’s budget and market prices of goods are given and do not change during the period. 3. Equilibrium Conditions (Cardinal Approach)

| Feature | Utility Approach | Indifference Curve Approach | | :--- | :--- | :--- | | | Cardinal (utils) | Ordinal (ranking) | | Assumption | MU diminishes | MRS diminishes | | Tools | MU, TU | IC, Budget Line | | Equality condition | ( MU_x/P_x = MU_y/P_y ) | ( MRS_xy = P_x/P_y ) | | Income effect | Assumes constant MU of money | Handles income effect via budget shifts |

Meaning: The rate at which you are willing to give up Y for X should equal the rate at which the market asks you to give up Y for X. A consumer is in equilibrium when the Marginal

This behavior is explained by the . This fundamental law states that as a consumer consumes more and more units of a commodity, the utility derived from each successive unit goes on decreasing . The first slice of pizza is heavenly, the second is great, but by the fourth or fifth, you're probably feeling full and not getting the same level of enjoyment.

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Do you need step-by-step for the Indifference Curve equilibrium? : Consumer reduces consumption

The Law of Diminishing Marginal Utility states that as more and more units of a commodity are consumed, the utility derived from each successive unit goes on decreasing.

The slope of the Indifference Curve must equal the slope of the Budget Line.