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Managerial Economics Notes, Study notes of Managerial Economics

Mahatma Joytiba Phule Rohilkhand University Lecture Notes Managerial Economics

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2021/2022

Available from 03/01/2023

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Mahatma Joytiba Phule Rohilkhand University
Lecture Notes
Managerial Economics
6.7 CONSUMER ’S EQUILIBRIUM
Principle of equi-borderline mileage occupies an important place in cardinal mileage
analysis. It's through this principle that consumer’s equilibrium is explained. A
consumer has a given income which he has to spend on colorful goods he wants.
Now, the question is how he'd allocate his given plutocrat income among colorful
goods, that's to say, what would be his equilibrium position in respect of the
purchases of the colorful goods. It may be mentioned then that consumer is assumed
to be ‘ rational ’, that is, he precisely calculates serviceability and backups one good for
another so as to maximise his mileage or satisfaction.
A consumer is in equilibrium when given his tastes, and price of the two
goods, he spends a given plutocrat income on the purchase of two goods in such a
way as to get the maximum satisfaction, According to Koulsayiannis, “ The consumer
is in equilibrium when he maximises his mileage, given his income and request prices. ”
hypotheticals
The incuriosity wind analysis of consumer’s equilibrium is grounded on the
following hypotheticals
1) The consumer’s incuriosity chart for the two goods X and Y is grounded on
his scale of preferences for them which doesn't change at each in this
analysis.
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Mahatma Joytiba Phule Rohilkhand University

Lecture Notes

Managerial Economics

6.7 CONSUMER ’S EQUILIBRIUM

Principle of equi-borderline mileage occupies an important place in cardinal mileage analysis. It's through this principle that consumer’s equilibrium is explained. A consumer has a given income which he has to spend on colorful goods he wants. Now, the question is how he'd allocate his given plutocrat income among colorful goods, that's to say, what would be his equilibrium position in respect of the purchases of the colorful goods. It may be mentioned then that consumer is assumed to be ‘ rational ’, that is, he precisely calculates serviceability and backups one good for another so as to maximise his mileage or satisfaction. A consumer is in equilibrium when given his tastes, and price of the two goods, he spends a given plutocrat income on the purchase of two goods in such a way as to get the maximum satisfaction, According to Koulsayiannis, “ The consumer is in equilibrium when he maximises his mileage, given his income and request prices. ” hypotheticals The incuriosity wind analysis of consumer’s equilibrium is grounded on the following hypotheticals

  1. The consumer’s incuriosity chart for the two goods X and Y is grounded on his scale of preferences for them which doesn't change at each in this analysis.
  1. His plutocrat income is given and constant. It'sRs. 10 which he spends on the two goods in question.
  2. Prices of the two goods X and Y are also given and constant. X is priced atRs. 2 per unit and Y atRs. 1 per unit.
  3. The goods X and Y are homogeneous and separable.
  4. There's no change in the tastes and habits of the consumer throughout the analysis
  5. There's perfect competition in the request from where he makes his purchases of the two goods.
  6. The consumer is rational and therefore maximises his satisfaction from the purchase of the two goods. Conditions There are three conditions for consumer’s equilibrium
  7. The Budget line should be digression to the incuriosity wind. Given these hypotheticals, the consumer can buy 5 units of X by spending the entire sum of Rs. 10 on good X or on 10 units ofY. Table illustrates some of the possible combinations on whichRs. 10 can be allocated. This budget equation is the equation of the line connecting the points Q and P, where Q = I/ Px and P = I/ Py. therefore PQ is the budget line. On this budget line, the consumer can have any combination, out of the possible seven combinations P, R, K, S, T, N, orQ. Combination P or Q is out of question for in either case he'd have only Y or onlyX. He'd not take combination R or N on a lower apathy wind I1 because combination K or T is also available to him on a advanced incuriosity wind l2. But there's another combination S which is on the loftiest incuriosity wind

economistsH.H. Gossen. It's also known as law of maximum satisfaction or law of negotiation or Gossen’s alternate law. A consumer has number of wants. He tries to spend limited income on different effects in such a way that borderline mileage of all effects is equal. When he buys several effects with given plutocrat income he equalizes borderline serviceability of all similar effects. The law of equi borderline mileage is an extension of the law of dwindling borderline mileage. The consumer can get maximum mileage by allocating income among goods in such a way that last bone spent on each item provides the same borderline mileage. description “ A person can get maximum mileage with his given income when it's spent on different goods in such a way that the borderline mileage of plutocrat spent on each item is equal ”. It's clear that consumer can get maximum mileage from the expenditure of his limited income. He should buy similar quantum of each commodity that the last unit of plutocrat spend on each item provides same borderline mileage. hypotheticals OF THE LAW OF EQUI MARGINAL UTILITY a) There's no change in the prices of the goods. b) The income of consumer is fixed. c) The borderline mileage of plutocrat is constant. d) Consumer has perfect knowledge of mileage attained from goods. e) Consumer is normal person so he tries to seek maximum satisfaction. f) The mileage is measurable in cardinal terms. g) Consumer has numerous wants. h) The goods have backups.

LIMITATIONS OF THE LAW OF EQUIMARGINAL UTILITY

Like other laws of economics, law of equi-borderline mileage is also subject to colorful limitations. This law, like other laws of economics, brings out an important tendency among the people. This isn't necessary that all people exactly follow this law in the allocation of their plutocrat income and thus all may not gain maximum satisfaction. This is due to the following reasons

  1. For applying this law of equi-borderline mileage in the real life, consumer must weigh in his mind the borderline serviceability of different goods. For this he has to calculate and compare the borderline serviceability attained from different goods. But it has been refocused out that the ordinary consumers aren't so rational and calculating. Consumers are generally governed by habits and customs. Because of their habits and customs they spend particular quantities of plutocrat on different goods, anyhow of whether the particular allocation maximises their satisfaction or not.
  2. For applying this law in factual life and equate the borderline mileage of the last rupee spent on different goods, the consumers must be suitable to measure the borderline serviceability of different goods in cardinal terms. still, this is easier said than done. It has been said that it isn't possible for the consumer to measure mileage cardinally. Being a state of cerebral feeling and also there being no objective units with which to measure mileage, it's cardinally bottomless. It's because of the immeasurability of mileage in cardinal terms that the consumer’s geste has