Question

Explain consumer equilibrium by the following approaches:

a. Cardinal Approach using double commodity.
b. Ordinal Approach.​

Answer 1

Answer:

there are two necessary condition to attain consumer's equilibrium in case of two commodities

(i) the ratio of the marginal utility to the prices same in case of both the goods.

when ,

$\bold{ \frac{MUx}{Px} = MUm}$

similarly consumer consuming another commodity (say y) will be at equilibrium

when ,

$\bold{ \frac{MUy }{Px} = MUm}$

equating both equation we get

MUx/px = MUy /Py = MUm

2.The Ordinal Approach to Consumer Equilibrium asserts that the consumer is said to have attained equilibrium when he maximizes his total utility (satisfaction) for the given level of his income and the existing prices of goods and services.