When a consumer spends income on two goods (say X and Y), equilibrium is reached when the ratio of marginal utility to price is the same for both goods. MUmcap M cap U sub m is the marginal utility of money).
3. Consumer's Equilibrium: Utility Approach (Marshallian Analysis)
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Standard unit of consumption (e.g., a cup of tea, not a spoonful).
Convex to the origin (due to diminishing Marginal Rate of Substitution). Higher IC represents higher satisfaction. When a consumer spends income on two goods
Utility can be measured in absolute numbers called "utils" (proposed by Alfred Marshall).
As a consumer consumes more and more units of a commodity, the Marginal Utility derived from each successive unit falls . Higher IC represents higher satisfaction
: Equilibrium occurs when the last rupee spent on each good yields the same amount of satisfaction. Condition : MUmcap M cap U sub m is the marginal utility of money). 2. Indifference Curve Analysis (Ordinal Approach)
Higher curves mean more goods, which means more utility.
(3 units of X × ₹2) + (4 units of Y × ₹1) = ₹6 + ₹4 = ₹10 (Matches income).