Consumers Equilibrium and Demand Test - 1

A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.

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.

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

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

Cardinal utility approach  is based on the theory of Alfred Marshall

There is a negative relation between price of the commodity and its quantity demanded,due to which elasticity coffecient is always negative.

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.

elasticity is diifferent from slope, slope will be same but not elasticity.

Flatter curve will have more elasticity, steeper will be less elastic.

slope is given by change in y axis / change in X axis.

An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility.