EQUI -MARGINAL UTILITY.
To maximize utility, consumer allocate their income among good so to equate the marginal utilities per rupee (MU/P), of the expenditure on the last unit of each good purchased.
This is also refer to as consumer equilibrium.
=MUx
Px
Spending should be allocated across goods so that the marginal utility on the last rupee spend is the same. A consumer has a given income which he spent on various goods he want.
The equi-marginal condition for the equilibrium of consumer can be stated:-
1. When a consumer equalize weighted marginal utility of all goods, when the marginal utility of each good weighted by its price is equal.
2. When a consumer equalizes the ratio of marginal utility of goods with the ratio corresponding prices for each pair of good consumed.
3. Measure the marginal utility of a rupee`s worth of each good consumed at a given price consumer is said to be equilibrium.
EXAMPLES:-
suppose apple and orange are two commodities to be purchased. suppose further that we have $7 to spend . let us spend $3 on orange and $4 on apple. so the result is, the 3rd unit of orange is 6 and the 4th unit of apple is 2. as the marginal utility of oranges is higher, we should buy more oranges and less apples.
To maximize utility, consumer allocate their income among good so to equate the marginal utilities per rupee (MU/P), of the expenditure on the last unit of each good purchased.
This is also refer to as consumer equilibrium.
=MUx
Px
Spending should be allocated across goods so that the marginal utility on the last rupee spend is the same. A consumer has a given income which he spent on various goods he want.
The equi-marginal condition for the equilibrium of consumer can be stated:-
1. When a consumer equalize weighted marginal utility of all goods, when the marginal utility of each good weighted by its price is equal.
2. When a consumer equalizes the ratio of marginal utility of goods with the ratio corresponding prices for each pair of good consumed.
3. Measure the marginal utility of a rupee`s worth of each good consumed at a given price consumer is said to be equilibrium.
EXAMPLES:-
suppose apple and orange are two commodities to be purchased. suppose further that we have $7 to spend . let us spend $3 on orange and $4 on apple. so the result is, the 3rd unit of orange is 6 and the 4th unit of apple is 2. as the marginal utility of oranges is higher, we should buy more oranges and less apples.
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