Explain the conditions of consumer's equilibrium under utility analysis
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When a consumer is purchasing one commodity, he stops buying when its price and utility have been equated.
At this point, his total utility is the maximum. He is said to be in equilibrium at this point, because he is getting maximum satisfaction and he will buy neither more nor less.
Only a change in price will lead to a change in the quantity demanded.
Equilibrium with More Than One Commodity:
According to Mashallian utility analysis, when expenditure of a consumer has been completely adjusted, that is, when marginal utility in each direction of his purchases is the same, it is called consumer’s equilibrium. Then he has no desire to buy any more of one commodity and less of another.
Given a set of market prices, his wants and his income, the consumer may be said to be in equilibrium when marginal utilities have been equalized and maximum satisfaction obtained. There will then be no inducement to revise his scheme of expenditure.
He will continue to buy the same commodities and in the same quantities until either his income or his wants or prices change. Adjustment of wants to one another and to his environments is a sign of consumer’s equilibrium. For a consumer “to be in equilibrium with respect to all goods, the marginal significance of all goods in terms of money must equal their money prices.”
In order to derive maximum satisfaction from the amount of money that a consumer has, he will so apportion his expenditure that the marginal utilities of the goods purchased will be in proportion to their prices.
At this point, his total utility is the maximum. He is said to be in equilibrium at this point, because he is getting maximum satisfaction and he will buy neither more nor less.
Only a change in price will lead to a change in the quantity demanded.
Equilibrium with More Than One Commodity:
According to Mashallian utility analysis, when expenditure of a consumer has been completely adjusted, that is, when marginal utility in each direction of his purchases is the same, it is called consumer’s equilibrium. Then he has no desire to buy any more of one commodity and less of another.
Given a set of market prices, his wants and his income, the consumer may be said to be in equilibrium when marginal utilities have been equalized and maximum satisfaction obtained. There will then be no inducement to revise his scheme of expenditure.
He will continue to buy the same commodities and in the same quantities until either his income or his wants or prices change. Adjustment of wants to one another and to his environments is a sign of consumer’s equilibrium. For a consumer “to be in equilibrium with respect to all goods, the marginal significance of all goods in terms of money must equal their money prices.”
In order to derive maximum satisfaction from the amount of money that a consumer has, he will so apportion his expenditure that the marginal utilities of the goods purchased will be in proportion to their prices.
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