Question

A consumer consumes only two goods . Explain consumer's equilibrium with the help of utility analysis

Answer 1

Analysis The conditions of consumer’s equilibrium using Marginal Utility analysis is studied under two situations.

(i) When only one commodity is consumed.

(ii) When two or more commodities are consumed.

Answer 2

Consumer’s Equilibrium with help of Utility Analysis:

Consumer equilibrium can be explained with the help of equi-marginal utility curve. Let us assume consumer consume 2 commodities X and Y. The equilibrium conditions are as below

$\frac{M U_{x}}{P_{x}}=\frac{M U_{y}}{P_{y}}=M U_{m}$

When more number of units are produced MU have tendency to fall. When MU of commodity X higher than MU of Y, curve will not reach to equilibrium. Consumer will buy more units of X commodity by reducing expense of Y commodity. It will result into fall of $M U_{x}$ and Raise of $M U_{y}$