Consumers Equilibrium Long Type Questions Question
1. Explain consumer’s equilibrium in cardinal approach . Answer: Considering the perception of the cardinal utility approach, we turn to
analyzing the consumer’s equilibrium . As a general rule, when a consumer
maximizes the total utility of the expenditure done by. him, then the consumer
reaches his equilibrium. To clarify consumer equilibrium, let’s start with a
simple one-object case. Suppose a fixed income earner spends only on a
commodity, X. His income is both utility for income and commodity X, so he can
spend his money on commodity X or it will remain with .himself if he keeps all
the total money and does not spend any amount on X, then the marginal utility
of money commodity X less than (i.e., MU x ) is greater than marginal
utility of money income (MU m ), total utility can be increased by exchanging money for the
commodity. Therefore,
a utility maximizing consumer exchanges his money income for the commodity so
long as MU x > MU m . As assumed earlier, m…
