Consumers Equilibrium and Demand Test - 4

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.

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.

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

An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

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

Utility is a subjective concept and varies from person to person, at different times and at different places. There cannot be a standardised measure for utility. Therefore, the point that utility always measurable is not true.

As per Alferd marshall MU of money is constant.

Measurement unit for utility is known as utils.

In the case of normal goods indifference curve is always convex.

Suppose a consumer is willing to pay Rs.10 for a commodity but it's price is Rs.6, we say that consumer's surplus is Rs.4.

As per the concept of consumer surplus, a consumer is in equilibrium where consumer surplus is zero.Referring to above example when price of commodity is Rs.10 and consumer's surplus is zero, the consumer is said to be in equilibrium.

Marginal utility is rate of change of total utility with respect to consumption of a commodity.so it is an addition to total utility resulting from a unit change in total utility.

Average utility is nothing but utility derived by per unit of consumption.

utility represents satisfaction experienced by the consumer from a good.

MU is the concept used in cardianl utility approch which was given by alferd marshal.

buyer and consumer is the same person.

Total utility is the total satisfaction received from consuming a given totalquantity of a good or service. It is the sum of marginal utility which can be expressed as:

TU = (MU1 + MU2+ ............ MUn)

Utility represents satisfaction experienced by the consumer from a good.

On indifference curve,consumer gets same satisfaction from each combination hence he is indifferent towards all combinations.

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.

As per law of dimnishing marginal utility, as the consumer goes on conuming MU derived from each succesive unit goes on falling,becomes zero and finally turns negative

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.

In order to increase the consumption of one good,other good must be sacrificed as utility level through out the indifference cure has to be same.Due to inverse relation between two goods indifference curve slopes downwards from left to right.

consumer equilibrium is a state of balance for the consumer from where he doesn’t want to move either forward or backward. This is achieved when consumer gets maximum satisfaction with given income and he doesn’t want to change his way of existing expenditure.