Question

Explain the condition of consumers equilibrium in case of use utility approach

Answer 1

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In Case of Single Commodity

In case of a single commodity, a consumer attains equilibrium when the utility derived from each additional unit of the rupee spent on the commodity becomes equal to the Marginal Utility of Money. In other words, the consumer attains equilibrium when,

Marginal Utility of a Rupee spent on the commodity = Marginal Utility of Money

Marginal Utility of a Rupee spent on the commodity- It refers to the utility that is derived from the additional unit of rupee spent on the commodity



Marginal Utility of Money (MUM)- It refers to the valuation of a unit of rupee. It is assumed to be constant. Thus, consumer’s equilibrium is attained where,

Diagrammatically


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