CBSE Class 12 Economics-Consumers Equilibrium

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UNIT-II

CONSUMER'S EQUILIBRIUM

Introduction

A consumer is one who buys goods and services for satisfaction of wants. The objective of a consumer is to get maximum satisfaction from spending his income on various goods and services, given prices.

We start with a simple example. Suppose a consumer wants to buy a commodity. How much of it should he buy? One of the approaches used for getting an answer to this question is 'utility' analysis. Before using this approach, we would like to familiarize ourselves with some basic concepts used in this approach,

Concepts

The term utility refers to the want satisfying power of a commodity. Commodity will possess utility only if it satisfies a want. Utility differs from person to person, place to place, and time to time. Marginal Utility is the utility derived from the last unit of a commodity purchased. It can also be defined as the addition to the total utility when one more unit of the commodity is consumed. Total Utility is the sum of the utilities of all the units consumed.

As we consume more units of a commodity, each successive unit consumed gives lesser and lesser satisfaction, that is marginal utility diminishes. It is termed as the Law of Diminishing Marginal Utility.


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