Consumer Equilibrium Class 11 Notes Pdf Download
Derrik Navarro
Making such comparisons for successive units till the consumption level of the 3rd unit at which MU in terms of money (i.e., 8) becomes equal to its price (i.e., 78). Thus, at the level of 3 apples, the consumer reaches the state of equilibrium because the above mentioned condition of equilibrium MU = P_ is met here.
-> Derivation of Demand curve through the MU = Price for single commodity consumer equilibrium: As we know a consumer purchases a good up to the point where marginal utility of the good becomes equal to the price of that good.
MU = Price
Now, suppose that the price of the good falls and therefore, it becomes lower than the MU. It means that MU is now greater than price.
MU > Price
Since MU is greater than the price, it means benefit is greater than the cost. It will induce the consumer to buy more units of the goods. In fact, the consumer must buy to reach equilibrium again. It shows that when price of goods falls, its demand rises and the consumer will continue to buy more units until MU falls enough to be equal to the price again. It can be explained with the help of the diagrams given on next page.
It can be seen from the given diagrams that Figure B is derived from Figure A. In figure A, initially, consumer equilibrium is attained at point E, where MU (10) = Price (10). Corresponding to point E, we derive point E1 in figure B.
Due to fall in price (suppose from 10 to 8), MU > Price at the given quantity. So, we can say that benefit is greater than cost and the consumer increases the quantity till MU = Price condition is attained at F. Corresponding to point F, we derive the point F1( in figure B. So, by joining point E1 and F1 together, we derive the demand curve.
-> Given above is the utility schedule of a consumer for commodity X. The price of the commodity is Rs. 6 per unit. How many units should the consumer purchase to maximize satisfaction? (Assume that utility is expressed in utils and 1 util = Rs. 1).
We know that the equilibrium condition for a consumer, in case of a single commodity, is
condition is satisfied, if the consumer purchases 4 units. (At this level, MUx = 6 utils, MUR = 1 and Px = Rs. 6), i.e. 6/1 = 6.
The consumer will purchase 4 units as MU is equal to price at the 4th unit. The consumer will not purchase less than 4 units as MU will be greater than the price and there will be scope for increasing the total satisfaction by purchasing more units. If the consumer buys more than 4 units, MU becomes less than the price is paid. Therefore, benefit is less than cost. So, the consumer decreases the quantity to increase the satisfaction.
In our previous paper, "Optimal Allocation of Public Goods...," (1977) we presented a mechanism for determining efficient public goods allocations when preferences are unknown and consumers are free to misrepresent their demands for public goods. We proved the basic welfare theorem for this model: If consumers are competitive in markets for private goods and follow Nash behavior in their choice of demands to report to the mechanism, then equilibria will be Pareto optimal. In this paper we show this result is not vacuous by proving that an equilibria will be Pareto optimal. In this paper we show this result is not vacuous by proving that an equilibrium will exist for a wide class of economies. Our conditions are slightly stronger than those required to prove the existence of a Lindahl equilibrium. In order to rule out the possibility of bankruptcy, we assume additionally that at all Pareto optimal allocations, private goods consumption is bounded away from zero.
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