Question

How does a consumer reach equilibrium position when he is buying only one commodity? Explain with the help of utility schedule.

Given the market price of good, how does a consumer decide as to how many units of that good to buy? Explain.

Explain conditions determining how many units of a good consumer will buy at a given price.

Answer 1

A consumer is said to be in equilibrium when he gets maximum satisfaction from the consumption of a commodity and has no tendency to change his consumption.

1. MU of a commodity must be equal to its price (MUx = Px), assuming marginal utility of money is constant and equal to one.
2. MU must be diminishing, i.e., marginal utility should fall as consumption increases.

Suppose the price of commodity X is ₹ 5 per unit.

Units Consumed	MU (₹)	Price (₹)
1	10	5
2	8	5
3	6	5
4	5	5
5	3	5
6	1	5

1. When MUx > Px: The consumer gets more satisfaction than the price paid. Therefore, he increases consumption.
2. When MUx = Px: The consumer gets satisfaction equal to the price paid. Therefore, he is in equilibrium.
3. When MUx < Px: The consumer gets less satisfaction than the price paid. Therefore, he reduces consumption.