CHAPTER

2 Consumer's Equilibrium
ln thegiven chapter we are going to discusN NOme basic nature of
which the consumer and we will find out the level at
consumer is fully andefficiently satisfied
Belore getting into the topics directly we first getourselffamiliar with some of thcbasic
follows: terms which are as
Utility:
The want satisfying capacity ofa commodity is called its
cardinal numbers such as 1,2,3... utility. It can be presented with the heip of
It is a psychological feeling of the
the consumer. consumers. It depends upon the need and importance of the product by
The measuring unit of utilityis Utils.
Total Utility:
It refers to the sum of all the utilities which can be
also called as the addition of all the utility of a derived by consuming all the units of acommodity. It is
Example;- Ifgood x is consumcd by a consumer commodity by consuming the units.
and he gets 20 utils of satisfaction after consuming one
unit. As he goes on his consumption, satisfaction
derived would be 17,15,..n utils.
When all the utility are summed up it gives total utility.
TU=U1+U2+U3+..... Un
Where, U= utility from unit {1,2,3,...n)
Marginal utility:
It refers to an additional utility which can be derived by
consuming one more unit of the commodity. In
other words, marginal utility refers to the change in total utility with
respect to change in per unit of
consumption.
Itis an extra utility which can be obtained by consuming one more unit of the
commodity.
MU= TUn -TUn-! ATU
MU=
AQ
Where, TUn= Total utility of current unit of consumption.
TUn-1= Total utility of previous unit of consumption. Where, ATU=Change in TU
AQ= Change in per unit of consumption.
TotalUtility (TU) Marginal Utility (MU)
It is the sum of all the utility which It is an additional utility which can be
Relation between TU and MU; can be derived by consuming all the derived by consuming one unit of a
units of a commodity. commodity.
TU=2MU MU-TUn-TUn-1
TUincreases MUcontinuously decreases.
TUmaximum MUbecomes zero
TUdeclines MUbecomes negative.