Consumer's Equilibrium through Cardinal Utility Approach

A consumer’s equilibrium is a state where a consumer, using limited income, buys a quantity of one good which gives maximum satisfaction and has no urge to change the quantity bought.

"A consumer is in equilibrium when he regards his actual behaviour as the best possible under the circumstances and feels no urge to change his behaviour as long as circumstances remain unchanged." – Scitovosky

• The consumer chooses to get maximum total satisfaction (utility).
• Utility can be measured in numbers (rupees, like ₹10, ₹20, etc.).
• The satisfaction from each extra unit decreases as you consume more (law of diminishing marginal utility).
• The value of money does not change.
• The consumer’s income, tastes, and prices of goods remain the same.

A consumer achieves equilibrium buying a single good for one use when the additional satisfaction (marginal utility, MU) from each extra unit falls and eventually equals the price (P) of that good.

Equilibrium condition: MU = P

Explanation:

• If $MU>P$: Buy more units (still worth it)
• If $MU<P$: Buy fewer units (not worth it)
• Equilibrium when $MU=P$, maximum satisfaction

Example (Apples):
Suppose the price per apple is ₹10. Buy apples one by one until the extra joy (MU) from the next apple drops to ₹10.

When a consumer uses a commodity for two or more purposes, the equilibrium is explained by the Law of Equi-Marginal Utility. The consumer divides their units across uses to maximise satisfaction.

Equilibrium condition:
Allocate each unit so that the marginal utility gained from each use is equal.
For uses A and B:

MU_A = MU_B

Example (Table):

The consumer assigns each unit to the use with the highest available MU, switching as the MUs become equal.

If multiple goods are bought, equilibrium is when the satisfaction earned per rupee spent is the same for all goods.

Equilibrium condition (when prices differ):

\[\frac{MU_x}{P_x}=\frac{MU_y}{P_y}=\frac{MU_z}{P_z}=\ldots\]

• Buy more of the good with a higher MU/P ratio until all ratios are equal.

• Equilibrium for one good: MU = P
• For several uses or goods: Allocate so MU (or MU/P) is equal for all options
• Law of Diminishing Marginal Utility: Each extra unit brings less satisfaction
• This guides smart, balanced buying for maximum total happiness