a consumer consumes one commodity explain consumer equilibrium with the help of utility analysis or utility approach
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According to Mashallian utility analysis, when expenditure of a consumer has been completely adjusted, that is, when marginal utility in each direction of his purchases is the same, it is called consumer’s equilibrium. Then he has no desire to buy any more of one commodity and less of another.
Given a set of market prices, his wants and his income, the consumer may be said to be in equilibrium when marginal utilities have been equalized and maximum satisfaction obtained. There will then be no inducement to revise his scheme of expenditure.
He will continue to buy the same commodities and in the same quantities until either his income or his wants or prices change. Adjustment of wants to one another and to his environments is a sign of consumer’s equilibrium. For a consumer “to be in equilibrium with respect to all goods, the marginal significance of all goods in terms of money must equal their money prices.”
In order to derive maximum satisfaction from the amount of money that a consumer has, he will so apportion his expenditure that the marginal utilities of the goods purchased will be in proportion to their prices.
Thus, a consumer will be in equilibrium when
M.U. of X /price of X = M.U. of Y / price of Y/ M.U. of Z / price of Z = k
This is also called the principle of proportionality.
In case the price of one commodity rises, less of this commodity and more of the other commodities will be purchased so that the proportion will be restored. In the case of durable goods it may not be possible to maintain proportionality. The above equation will hold good only if the consumers’ tastes and other circumstances remain unchanged and the commodities are perfectly divisible.
Now if price of commodity X falls, if the fraction is still to be equal to k which is constant, the numerator, i.e., the marginal utility of X must also fall. This will happen only when the consumer consumes more of X. Hence a fall in the price of X leads to more of X being demanded. The position may, however, seem unrealistic. In real life, no sensible consumer bothers about making minute marginal adjustments. Human being are not calculating machines.
The above explanation of a consumer’s equilibrium has been given with the help of the concept of utility; it is, therefore, called the analysis of demand or consumer’s behaviour.
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HOPE IT MAY HELP YOU ☺☺ AND KEEP SMILING ☺☺❤
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According to Mashallian utility analysis, when expenditure of a consumer has been completely adjusted, that is, when marginal utility in each direction of his purchases is the same, it is called consumer’s equilibrium. Then he has no desire to buy any more of one commodity and less of another.
Given a set of market prices, his wants and his income, the consumer may be said to be in equilibrium when marginal utilities have been equalized and maximum satisfaction obtained. There will then be no inducement to revise his scheme of expenditure.
He will continue to buy the same commodities and in the same quantities until either his income or his wants or prices change. Adjustment of wants to one another and to his environments is a sign of consumer’s equilibrium. For a consumer “to be in equilibrium with respect to all goods, the marginal significance of all goods in terms of money must equal their money prices.”
In order to derive maximum satisfaction from the amount of money that a consumer has, he will so apportion his expenditure that the marginal utilities of the goods purchased will be in proportion to their prices.
Thus, a consumer will be in equilibrium when
M.U. of X /price of X = M.U. of Y / price of Y/ M.U. of Z / price of Z = k
This is also called the principle of proportionality.
In case the price of one commodity rises, less of this commodity and more of the other commodities will be purchased so that the proportion will be restored. In the case of durable goods it may not be possible to maintain proportionality. The above equation will hold good only if the consumers’ tastes and other circumstances remain unchanged and the commodities are perfectly divisible.
Now if price of commodity X falls, if the fraction is still to be equal to k which is constant, the numerator, i.e., the marginal utility of X must also fall. This will happen only when the consumer consumes more of X. Hence a fall in the price of X leads to more of X being demanded. The position may, however, seem unrealistic. In real life, no sensible consumer bothers about making minute marginal adjustments. Human being are not calculating machines.
The above explanation of a consumer’s equilibrium has been given with the help of the concept of utility; it is, therefore, called the analysis of demand or consumer’s behaviour.
____________________________________
HOPE IT MAY HELP YOU ☺☺ AND KEEP SMILING ☺☺❤
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