Consumer Equilibrium - Class 11 Notes 2021

: The cost outweighs the benefit. The consumer will reduce consumption. Reached when Case 2: Two or More Commodities

In simple terms: the last rupee spent on Good X must provide the same satisfaction as the last rupee spent on Good Y. Indifference Curve (IC) Analysis Consumer Equilibrium Class 11 Notes

| Feature | Utility Approach (Cardinal) | Indifference Curve Approach (Ordinal) | | :--- | :--- | :--- | | | Utility is measurable in "utils." | Utility is not measurable; only ranked. | | Key Tool | Marginal Utility (MU) | Marginal Rate of Substitution (MRS) | | Key Law | Law of Equi-Marginal Utility | Diminishing MRS | | Equilibrium Condition | ( \fracMU_xP_x = \fracMU_yP_y ) | ( MRS_xy = \fracP_xP_y ) | | Income Effect | Assumes MU of money is constant. | Does not require constant MU of money. | | Realism | Less realistic (numbers are arbitrary). | More realistic (ranking is natural). | : The cost outweighs the benefit

Total satisfaction from consuming a specific quantity. Indifference Curve (IC) Analysis | Feature | Utility

The consumer reaches equilibrium where the Indifference Curve is tangent to the Budget Line.

Each curve represents a distinct level of satisfaction. 3. The Budget Line