With the help of a diagram, explain how the consumer will attain equilibrium on the consumption of a single commodity at a given price. - Economics

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Long Answer

With the help of a diagram, explain how the consumer will attain equilibrium on the consumption of a single commodity at a given price.

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Solution

  1. A consumer's equilibrium is a condition in which the benefit obtained from a commodity is equal to the price of the commodity. As a result, the following conditions must be met for a consumer to be in equilibrium:
    MUx = Px
  2. Also, for a single commodity, the needed condition is MUx = Px. The marginal utility of a commodity decreases when the user consumes more of it. A rational consumer would continue to spend until the marginal utility of items equalled the price. This is the state of consumer equilibrium. This is the point at which a consumer is unwilling to consume any more. This is explained by the table and graphic below:
  3. If the price is less than the marginal utility, a rational consumer would enhance his overall utility (satisfaction) by consuming more of the commodity. Consumers can raise their total utility by consuming less of a commodity if the price exceeds the marginal utility. The table indicates that consumer equilibrium occurs at the third unit of the commodity. It is at this stage that the necessary condition for the consumer's equilibrium is met. Consumers are unlikely to purchase more than three units of a commodity if their marginal utility is lower than its price. The figure below depicts the consumer's equilibrium in a single commodity instance.

Utility Schedule: Consumer's Equilibrium

Units of
Goods (X)
Marginal Utility
of Good (MUx)
Price of the
Goods (Px)
Remarks
1 20 10 Consumers's equilibrium
2 16 10
3 10 10
4 4 10
5 0 10
6 -6 10

Concept: Consumer's Equilibrium
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2022-2023 (March) Official

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