Question

explain the concept of consumer equilibrium is case of only two commodities using utility analysis.​

Answer 1

Hello !

(a) Statement Suppose, a consumer consumes only two goods X and Y.

• He will attain equilibrium only if he allocates his given income on the purchase of good X and Y in such a way that per rupee MU of both the products is equal and he gets maximum TU.

• Any change in this combination will reduce his total satisfaction.

(b) Conditions of Consumer Equilibrium in Case of Two Commodity Model

For a consumer to be in the state of equilibrium, the following conditions must be fulfilled:

First Condition: MUx/Px = MUy/Py

⇒Where, MUx = Marginal Utility of commodity X; Px = Price of commodity X

⇒MUy= Marginal Utility of commodity Y; Py  = Price of commodity Y

Second Condition:

⇒MU declines with an increase in consumption i.e. Law of Diminishing Marginal Utility operates.

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