Class 11 Consumer Equilibrium Notes | PDF | Utility - Scribd
Condition 2: IC must be convex to the origin at the point of equilibrium.Condition 2: IC must be convex to the origin at the point of equilibrium. : The consumer values good more than the market price. They will substitute MRScap M cap R cap S to fall until it equals the price ratio. : The consumer values good more. They will cut back on and buy more MRScap M cap R cap S back up to equality. Quick Revision Summary Table Cardinal Approach Ordinal Approach Measurement Quantifiable (Utils) Qualitative (Ranks) Main Tools Marginal Utility ( MUcap M cap U Indifference Curve ( ICcap I cap C ) & Budget Line 1-Good Condition 2-Good Condition
MU of a product = Price of that product (MUx = Px) Condition 2: For two products: MUx / Px = MUy / Py
Consumer equilibrium refers to a situation where a consumer spends their given income on one or more goods in such a way that they get maximum satisfaction and have no tendency to change their current expenditure pattern. 2. The Concept of Utility consumer equilibrium class 11 notes free
MRS is the rate at which a consumer is willing to substitute Good while keeping total satisfaction constant.
This theory (developed by Alfred Marshall) assumes that utility can be measured in exact, quantifiable units called utils (e.g., 10 utils of satisfaction).
The modern Hicks and Allen approach uses ordinal utility, meaning utility cannot be measured in numbers, only ranked as higher or lower. What is an Indifference Curve? Class 11 Consumer Equilibrium Notes | PDF |
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As more units of a commodity are consumed, the utility derived from each successive unit decreases. Conditions for Equilibrium One Commodity Case: : Consumer buys more. : Consumer buys less. Two Commodity Case (Law of Equi-Marginal Utility): MUmcap M cap U sub m is the marginal utility of money). 2. Indifference Curve Analysis (Ordinal Approach)
A consumer is said to be in equilibrium when they maximize their total utility (satisfaction) given their income and the prices of goods, and have no incentive to change their spending pattern. : The consumer values good more
Condition 1: MUxPx=MUyPy=MUmCondition 1: the 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
| Units of Apple | MU (utils) | Price (₹) | Decision | | :--- | :--- | :--- | :--- | | 1 | 10 | 5 | MU > P → Buy | | 2 | 8 | 5 | MU > P → Buy | | 3 | | 5 | MU = P → STOP (Equilibrium) | | 4 | 2 | 5 | MU < P → Don’t buy |