What is Consumer’s Equilibrium?
The term equilibrium is used frequently in economic analysis. It is a state of rest or a position of no change, which under a situation provides the maximum gain. A consumer is said to be in equilibrium when he has derived maximum satisfaction and does not want to change his consumption level. Hence, Consumer’s Equilibrium is a situation in which a consumer has maximum satisfaction with limited income and does not tend to change his existing way of expenditure.
As a consumer has to pay for each unit of commodity, he cannot purchase or consume unlimited quantities. Besides, according to the Law of Diminishing Marginal Utility, as the consumer consumes an additional unit of a commodity, the utility derived from the same decreases. Also, by purchasing more units of a commodity, the income of the consumer decreases. Therefore, the aim of a rational consumer is to balance his expenditure in a way that he gets maximum satisfaction by spending a minimum amount of income, and when the consumer successfully accomplishes his aim, he is said to be in equilibrium.
Two different situations in which Consumer’s Equilibrium can be studied are:
- When a consumer spends his entire income on a Single Commodity
- When a consumer spends his entire income on Two Commodities
Table of Content
- Consumer’s Equilibrium in Single Commodity Case
- Consumer’s Equilibrium in Two Commodities Case