Consumer Equilibrium Class 11 Notes Free Now

This is the Ordinal Utility Approach by Hicks and Allen. No numbers; only preferences.

Realistically, a consumer spends money on many goods. For two goods (X and Y), equilibrium occurs when the ratio of marginal utility to price is equal for both goods, and the entire income is spent.

| Feature | Utility Approach | Indifference Curve Approach | | :--- | :--- | :--- | | Measurement | Cardinal (utils) | Ordinal (ranking) | | Assumption | MU diminishes | MRS diminishes | | Tools | MU, TU | IC, Budget Line | | Equality condition | ( MU_x/P_x = MU_y/P_y ) | ( MRS_xy = P_x/P_y ) | | Income effect | Assumes constant MU of money | Handles income effect via budget shifts | consumer equilibrium class 11 notes free

  • Budget Line (Price Line): A straight line showing all possible combinations a consumer can buy with their income.

    • Real life involves choosing between multiple goods (e.g., Apples & Oranges). This is the Ordinal Utility Approach by Hicks and Allen

    Condition for Equilibrium: The consumer will allocate income such that the last rupee spent on each good yields the same marginal utility.

    Formula: [ \fracMU_xP_x = \fracMU_yP_y = MU_m ] Budget Line (Price Line): A straight line showing

    Rationale:

    To understand equilibrium, we must first understand Utility.

    Definition: Utility is the want-satisfying power of a commodity. It is a subjective measure of satisfaction.

    This is the Ordinal Utility Approach by Hicks and Allen. No numbers; only preferences.

    Realistically, a consumer spends money on many goods. For two goods (X and Y), equilibrium occurs when the ratio of marginal utility to price is equal for both goods, and the entire income is spent.

    | Feature | Utility Approach | Indifference Curve Approach | | :--- | :--- | :--- | | Measurement | Cardinal (utils) | Ordinal (ranking) | | Assumption | MU diminishes | MRS diminishes | | Tools | MU, TU | IC, Budget Line | | Equality condition | ( MU_x/P_x = MU_y/P_y ) | ( MRS_xy = P_x/P_y ) | | Income effect | Assumes constant MU of money | Handles income effect via budget shifts |

  • Budget Line (Price Line): A straight line showing all possible combinations a consumer can buy with their income.

    • Real life involves choosing between multiple goods (e.g., Apples & Oranges).

    Condition for Equilibrium: The consumer will allocate income such that the last rupee spent on each good yields the same marginal utility.

    Formula: [ \fracMU_xP_x = \fracMU_yP_y = MU_m ]

    Rationale:

    To understand equilibrium, we must first understand Utility.

    Definition: Utility is the want-satisfying power of a commodity. It is a subjective measure of satisfaction.