Question

The marginal utility schedule of a rational consumer is given below. If the price of a commodity is ₹ 35, explain with the help of a diagram, how the consumer attains equilibrium.

Number of the commodity bought	1	2	3	4	5
MU	50	45	40	35	30

Answer 1

In the case of a single commodity, the consumer is in equilibrium when the MU of the commodity equals its price.

Number of the commodity bought	MU	Price
1	50	35
2	45	35
3	40	35
4	35	35
5	30	35

The schedule above shows that the consumer is in balance (equilibrium) when he buys 4 units, at which point MU = Price.

It can be explained with the help of the following diagram:

At E, the equilibrium condition is satisfied, i.e., MU = Price.

1. If MU > Price, i.e., before E, the consumer gains more utility than the price he pays. So, he continues to consume.
2. If MU < Price, i.e., beyond E, he has to pay more than his utility gain; therefore, he reduces his consumption. So, equilibrium is attained at E where MU = P.