Microeconomics: One Shot on Consumer Equilibrium

Concept of Utility

• Definition of Utility: The power within an object to satisfy desires.
• How Utility is Measured: Measured in utils.
• Marginal Utility: Satisfaction received from consuming an additional unit.
• Total Utility: Total sum of satisfaction from all units.

Types of Utility

• Positive, Zero, and Negative Utility: Changes according to the amount of consumption.

Law of Diminishing Marginal Utility

• Statement of the Law: As consumption of a good increases, marginal utility decreases.
• Exceptions to the Law: Wealth, knowledge, and some hobbies.

Consumer Equilibrium

• Definition: A consumer is in a state where they maximize their total utility according to their income.
• Conditions in the Case of a Single Good:
  • MU should decrease.
  • MUX/Price = MUM should hold.

Consumer Equilibrium in the Case of Double Goods

• Conditions:
  • The ratio of MU and Price should be equal for both goods.
  • MUX/PX = MUY/PY = MUM

Graphical Representation

• Graphs of MU and TU:
  • TU graph first increases and then decreases, while the MU graph consistently decreases.
  • When MU is zero, TU is maximum.

Complexity and Approach

• Rational Consumer: Tries to maximize their utility.
• Approach: Cardinal Utility Approach and Indifference Curve Approach.

Exercise

• Explanation for Tables and Equilibrium:
  • How consumer equilibrium is depicted in tables.
  • Explanation using conditions and tables.

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These notes help to revisit the core points of the syllabus, especially for exam preparation.