The cardinal approach determines consumer equilibrium under two different scenarios: a single commodity and two or more commodities. Case A: Single Commodity Scenario
A straight line showing all possible combinations a consumer can buy with their income.
(marginal rate of substitution), which means as a consumer has more of good , they are willing to give up less and less of good to get an additional unit of
| Approach | Condition | Meaning | | :--- | :--- | :--- | | | $MU_x = P_x$ | Marginal Utility equals Price. | | Two Commodity (Cardinal) | $\fracMU_xP_x = \fracMU_yP_y = MU_m$ | Marginal Utility per rupee is equal across all goods. | | Indifference Curve (Ordinal) | $MRS_xy = \fracP_xP_y$ | Slope of Indifference Curve equals Slope of Budget Line. | consumer equilibrium class 11 notes free
Before understanding equilibrium, you must master the concept of .
When MU reaches zero, TU reaches its maximum point (Point of Satiety). Phase 3: When MU becomes negative, TU starts declining.
The consumer reaches equilibrium at the exact point where the budget line is tangent to the highest possible indifference curve. | | Two Commodity (Cardinal) | $\fracMU_xP_x =
Each IC represents a specific, unique level of satisfaction. B. Budget Line (Budget Constraint)
Case B: Two Commodities Framework (Law of Equi-Marginal Utility) When spending income on two goods (
A state of rest where there is no incentive to change behavior. When MU reaches zero, TU reaches its maximum
The sum total of satisfaction derived from consuming all units of a commodity.
Equilibrium is reached when the ratio of marginal utility to price is equal for both goods: Marginal Utility of Money
represents the worth of a rupee to the consumer. It is the extra satisfaction a consumer gets by spending an additional unit of money. 5. Indifference Curve (Ordinal Approach)