define consumers equilibrium howis it dertermined in case of commodity
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Explanation:
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Answer:
The term 'equilibrium' is frequently used in economic analysis. Equilibrium means a state of rest or a position of no change. It refers to a position of rest, which provides the maximum benefit or gain under a given situation. A consumer is said to be in equilibrium, when he does not intend to change his level of consumption, i.e., when he derives maximum satisfaction.
Consumer's Equilibrium refers to the situation when a consumer is having maximum satisfaction with limited income and has no tendency to change his way of existing expenditure. The consumer has to pay a price for each unit of the commodity. So, he cannot buy or consume unlimited quantity. As per the Law of DMU, utility derived from each successive unit goes on decreasing. At the same time, his income also decreases with purchase of more and more units of a commodity.
So, a rational consumer aims to balance his expenditure in such a manner, so that he gets maximum satisfaction with minimum expenditure. When he does so, he is said to be in equilibrium. After reaching the point of equilibrium, there is no further incentive to make any change in the quantity of the commodity purchased.
It is assumed that the consumer knows the different goods on which his income can be spent and the utility that he is likely to get out of such consumption. It means that the consumer has perfect knowledge of the various choices available to him.