Consumer Equilibrium Class 11 Notes Free -

This is the foundation of consumer equilibrium.

Statement: As a consumer consumes more and more units of a commodity, the Marginal Utility derived from each successive unit falls.

Assumptions (for exams):

Why does MU fall? Because a specific want becomes saturated after continuous consumption.

| Feature | Utility Approach | Indifference Curve Approach | | :--- | :--- | :--- | | Measurement | 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 | consumer equilibrium class 11 notes free

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.

Conditions:

  • Marginal Utility of Money is constant: The utility of money remains the same (assumed).

    • Explanation:

    [ MU_x = P_x ] Where:

    | Feature | Utility Analysis (Cardinal) | Indifference Curve Analysis (Ordinal) | | :--- | :--- | :--- | | Founder | Alfred Marshall | Hicks & Allen | | Utility | Measurable in numbers (utils) | Not measurable; only comparable | | Main Tool | Marginal Utility (MU) | Indifference Curve (IC) & Budget Line |

    [ \fracMU_xP_x = \fracMU_yP_y = MU_\textmoney ] This is the foundation of consumer equilibrium