Consumers Equilibrium and Demand Test - 3

 The Ordinal Utility approach is based on the fact that the utility of a commodity cannot be measured in absolute quantity, but however, it will be possible for a consumer to tell subjectively(by ranking) whether the commodity derives more or less or equal satisfaction when compared to another.

IC slopes downward because as the consumer increases the consumption of one commodity, he has to give up certain units of other commodity in order to maintain the same level of satisfaction.

two indifference curves represent two different levels of satisfaction. If these indifference curves intersect each other, the intersection will represent same level of satisfaction, which is impossible.

MU is addition to TU when an MU becomes -ive TU falls.

   First rises till MU is positive, then reaches its maximum when MU=0,then starts falling when MU becomes negitive.

TU,   First rises till MU is positive, then reaches its maximum when MU=0,then starts falling when MU becomes negitive.

slope of price line is given by ratio of the prices of two goods, i.e. Px/Py, which is constant.

The indifference curves cannot intersect each other. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. This is absurd and impossible.

Approch is for an individual consumer, market has nothing to do with it.

The theory of consumer's surplus is based on the law of diminishing marginal utility. The law of diminishing marginal utility claims that as you consumer more of a commodity, the marginal utility derived from it decreases eventually.a

Saturation Point: The point where the desire to consume the same product anymore becomes zero.

hence additional consumption will not give any satisfaction to consumer,MU = 0