Consumers Equilibrium and Demand Test - 10

A consumer is in a state of equilibrium in terms of utility maximization when they allocate their entire budget across different goods in such a way that the marginal utility per unit of money spent is equal for all goods. This implies that the consumer has maximized their total utility given their budget constraint. Choosing the combination of goods that provides the highest total utility within the given budget constraint ensures that the consumer is in equilibrium. 

In equilibrium, the aggregate quantity that all firms wish to sell equals the quantity that all the consumers in the market wish to buy. Both the consumers' and firms' objectives are compatible in the market equilibrium. The price at which equilibrium is reached is called the equilibrium price and the quantity bought and sold at this price is called equilibrium quantity.

It slopes downward to the right. This inference is based on the law of demand, which states that there is an inverse relationship between the price of a good and the quantity demanded, holding all other factors constant. Therefore, when the price increases, the quantity demanded decreases, resulting in a downward-sloping demand curve.

When there is growth in resources, it implies an increase in the economy's capacity to produce goods and services. This expansion leads to a more efficient utilization of resources, causing the production possibility curve to shift outward or to the right. As a result, the curve becomes flatter and less concave, indicating that the economy can now produce more of both goods without sacrificing as much of the other.

In cardinal utility approch utility is measured in numerical terms and unit used for measurement is known as utils.

To determine the equilibrium point, consumer compares the price (or cost) of the given commodity with its utility (satisfaction or benefit). Being a rational consumer, he will be at equilibrium when marginal utility is equal to price paid for the commodity.

Consumer surplus represents the additional value consumers receive when they are willing to pay a higher price for a good than the actual price they pay in the market.

If the price of a product increases and its quantity demanded decreases, it indicates an inverse relationship between price and quantity demanded. This suggests that the demand curve is downward-sloping, as higher prices lead to lower quantities demanded and vice versa.

Point of Satiety is defined as '' the point where marginal utility of any commodity is zero''. Thus it is a point where satisfaction of any commodity is zero.

Elastic demand occurs when a change in price leads to a proportionally larger change in quantity demanded. In this case, as the price decreases, the quantity demanded increases significantly, indicating a high responsiveness of quantity demanded to price changes, characteristic of elastic demand.