Explain how consumer attains equilibrium with the help of utility analysis.
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Conditions of consumer’s equilibrium using utility approach are as follows:
In case of single commodity,
MUx/Px=MU of money.
In case of two commodities,
MUx/Px=MUy/Py=MU of money.
whereM=marginal and P=price..
Where, MUX is Marginal Utility of commodity x; MUy is Marginal Utility of commodity y; Px is price of commodity X and Py is price of commodity y.
(ii) Marginal Utility of money remains constant.
(iii) Law of Diminishing Marginal Utility must hold good, implying that Marginal Utility must decline as more of a commodity is consumed.
HOPE IT HELPS YOU, IF HELPED FOLLOW ME.
In case of single commodity,
MUx/Px=MU of money.
In case of two commodities,
MUx/Px=MUy/Py=MU of money.
whereM=marginal and P=price..
Where, MUX is Marginal Utility of commodity x; MUy is Marginal Utility of commodity y; Px is price of commodity X and Py is price of commodity y.
(ii) Marginal Utility of money remains constant.
(iii) Law of Diminishing Marginal Utility must hold good, implying that Marginal Utility must decline as more of a commodity is consumed.
HOPE IT HELPS YOU, IF HELPED FOLLOW ME.
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