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  • The Marginal Utility of Mney Must Be Enatant: PN - Müm Where, PX - Marginal Utility of Noney Expenditure On Gool'

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    GT ANUP
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    The document discusses the concept of consumer equilibrium, where the marginal utility derived from consuming a good equals the price of that good, so the consumer is maximizing utility given their budget. It presents assumptions for consumer behavior and provides a schedule showing that as a rational consumer consumes more units of a good, marginal utility decreases until it equals price, at which point the consumer reaches equilibrium. A diagram further illustrates the downward sloping marginal utility curve and how the point of equilibrium is reached when marginal utility equals price on the y-axis.

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    The document discusses the concept of consumer equilibrium, where the marginal utility derived from consuming a good equals the price of that good, so the consumer is maximizing utility given their budget. It presents assumptions for consumer behavior and provides a schedule showing that as a rational consumer consumes more units of a good, marginal utility decreases until it equals price, at which point the consumer reaches equilibrium. A diagram further illustrates the downward sloping marginal utility curve and how the point of equilibrium is reached when marginal utility equals price on the y-axis.

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    © All Rights Reserved
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    6 views1 page

    The Marginal Utility of Mney Must Be Enatant: PN - Müm Where, PX - Marginal Utility of Noney Expenditure On Gool'

    Uploaded by

    GT ANUP
    The document discusses the concept of consumer equilibrium, where the marginal utility derived from consuming a good equals the price of that good, so the consumer is maximizing utility given their budget. It presents assumptions for consumer behavior and provides a schedule showing that as a rational consumer consumes more units of a good, marginal utility decreases until it equals price, at which point the consumer reaches equilibrium. A diagram further illustrates the downward sloping marginal utility curve and how the point of equilibrium is reached when marginal utility equals price on the y-axis.

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    © All Rights Reserved
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    of 1

    I.

    Consumer equlibrinminesentone eommuity


    In case ofsingle eommoditytheeneeie in eilibiust tlejntity ef niteat hieh the mainal il/
    ofgood xis equal the priee of good x
    In other wonds, the manginal utility ofnney expenditure mutleeat wih the maruinal uibyo mney
    This can be presented using NNption, a helute nttngm
    > Assumptionst
    " Aconsumer must be arational one.
    . The Marginal utility of mney must be enatant
    . The consumer must be continuous ineonsunption,
    The budget orincome ofaconsumer nmst remain uneclhanged.
    Conditions:
    MUN MUN
    PN -MÜm Where, Px -Marginal utility of noneyexpenditureongool'
    Mum-Marginal utility ofmoney
    " MUN =Px
    Value ofmarginal utility ofgood'x'must be equal to one.
    MUN
    -Px
    MUm

    " Schedule:
    Units MUN Px
    20 5.
    slopes 2 17
    mum
    3 15
    JMU,-P)
    4 12 5
    5
    its of
    MU,
    7 2 5 Units

    In the given schedule the consumer prefers to consume more and more units of commoadityif marinal utility
    as a
    ofgood'w' is more than the priceofgood'x. The proces ofconsumption will ygo on umtil the marginal utility of
    vith
    good 'x' or the marginal utility of money expenditure must be cqual with the price (and within the given budget
    of the consumer), i.e. fulfilled at the fifth unit of this schedule. In the given diagram the consumer is in
    cquilibrium at point E, in which the marginalutility of good'x'is cqual with the price of pood '* (gcting the
    same amount of satisfactionin return).
    The marginal utilitiy curve slopes downward from left to right in straight line. The 'ox-axis' repreents the units
    ofgood'w'and y-axis'represents marginal utiliy ofgood'w'respectively.

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