: The consumer gets more utility per rupee from Good Y. They will buy more Y and less X. As consumption of Y increases, MUycap M cap U sub y falls until equality is restored. 5. Ordinal Utility Approach (Indifference Curve Analysis)
) is in equilibrium when the marginal utility of the good in money terms equals its price [1]. (Where MUxcap M cap U sub x is Marginal Utility of Pxcap P sub x is Price of If
A consumer will buy apples until: Marginal Utility of Apple (in ₹) = Price of Apple
Equation: (PX⋅X)+(PY⋅Y)=MEquation: open paren cap P sub cap X center dot cap X close paren plus open paren cap P sub cap Y center dot cap Y close paren equals cap M are quantities, and
The additional satisfaction gained from consuming one extra unit of a commodity. consumer equilibrium class 11 notes free
If they crossed, it would violate the assumption of transitivity and consistency, implying a single combination could yield two different levels of satisfaction simultaneously. Monotonic Preferences
To explain how a consumer reaches this point, economists use two primary analytical tools.
Px⋅X+Py⋅Y≤Mcap P sub x center dot cap X plus cap P sub y center dot cap Y is less than or equal to cap M
The consumer achieves equilibrium when the marginal utility of the good in terms of money equals its market price: : The consumer gets more utility per rupee from Good Y
Utility is the want-satisfying power of a commodity. It is subjective and varies from person to person, place to place, and time to time. Cardinal vs. Ordinal Utility
This approach (pioneered by Hicks and Allen) suggests that utility cannot be measured, only ranked (ordinal). A. Indifference Curve (IC)
The budget line is a graphical representation of all possible combinations of two goods that a consumer can afford to buy, given their income and the prices of the goods. The equation for a budget line is: , where M is the consumer's money income.
| Term | Definition | | :--- | :--- | | | Sum of satisfaction from all units consumed. | | Marginal Utility | Additional utility from consuming one extra unit. | | Indifference Map | A family of indifference curves (higher IC = higher satisfaction). | | Budget Set | All bundles a consumer can afford. | | MRS (Marginal Rate of Substitution) | The amount of good Y a consumer is willing to give up for one more unit of X. | If they crossed, it would violate the assumption
The slope of the Indifference Curve must equal the slope of the Budget Line.
: The sum total of satisfaction derived from consuming all units of a commodity.
Now, let's explore these concepts in detail to give you a complete understanding for your exams.
Consumer equilibrium is a state where a consumer achieves with their limited income and has no tendency to change their existing expenditure . In Class 11 Economics, this is studied through two primary lenses: Cardinal Utility Analysis and Ordinal Utility Analysis . 1. Fundamental Concepts
The cardinal approach determines consumer equilibrium under two different scenarios: a single commodity and two or more commodities. Case A: Single Commodity Scenario