Consumer Equilibrium

Introduction

• Today's topic: A challenging chapter in microeconomics, consumer equilibrium.
• Understanding consumer equilibrium can simplify the entire microeconomics.

Utility

• Utility: The ability of a good to satisfy desires.
• If a good is in high demand, its utility will be high.
• Example:
  • After being hungry for 2 days, the utility of bottle gourd increases.

Total Utility

• Total utility: The sum of satisfaction obtained after consuming all units of a good.
• Example:
  • 100 utils from a first glass of water, 40 from the second; total 140 utils.
• Formula: TU = U1 + U2 + U3 + ... + UN
  • U1, U2, U3, ... = Utility obtained from different units.

Marginal Utility

• Marginal utility: Additional satisfaction from consuming the next unit.
• Example:
  • After a first wicket, the second wicket scored 40 runs, this is marginal.
• Formula:
  • MU = (TU (n) - TU (n-1)) / (Q (n) - Q (n-1))
  • The difference between previous and current utility.

Law of Diminishing Marginal Utility

• Law: As a consumer consumes more of a good, the satisfaction from each subsequent unit decreases.
• Example:
  • 100 utils from first glass of water, 60 from the second, 40 from the third.

Graphical Representation

• When marginal utility is 0, total utility is at its maximum.
• As marginal utility becomes negative, total utility begins to decrease.

Assumptions

• It should be possible to measure utility.
• The consumer should be rational.
• Income should remain stable.
• Quantity, quality, and size of goods should remain constant.

Conclusion

• It is essential to understand the relationship between consumer equilibrium and utility.
• In the next video, we will discuss the two cases of consumer equilibrium.
• Do not hesitate to ask questions.
• Thank you for paying attention to the video!