A consumer is said to be in equilibrium when they maximize their total utility (satisfaction) given their income and the prices of goods. At this point, the consumer has no desire to change their spending pattern.
There are two primary methods used in Class 11 Microeconomics to study this concept: Cardinal Utility Approach (Marshallian Analysis):
The additional satisfaction gained from consuming one more unit of a commodity. Formula: The Law of Diminishing Marginal Utility (DMU)
: The consumer decreases consumption because the cost is higher than the benefit.
Priya explained: “You should buy that item which gives higher MU per rupee. First, buy Chai (MU/Price = 4 > 3). Then compare again.”
“Not if I explain it for free,” Priya grinned. She pulled out a sheet of paper titled and began.
Consumer Equilibrium is the state where a consumer achieves maximum satisfaction
The last rupee spent on good X gives the same satisfaction as the last rupee spent on good Y.
