Question

When you go shopping I am sure you do not consciously make decisions the way you have learned using the mathematics of consumer equilibrium this week. Can you describe in words how you make a decision when you go shopping for 2 items with a certain amount of money in your pocket? Do you think that on the subconscious level you are using consumer equilibrium to make your choices? Why or why not?

Answer 1

A consumer is said to in equilibrium when he maximizes his satisfaction, given income and prices of the commodities. Now coming back to the question, there are certain important elements which are to be considered before shopping.

1. Requirement of the product.
2. Whether it satisfies the needs and in what quantities.
3. Whether I can get maximum utility out of it.

Assume the two items to be purchased are X and Y. with prices Px and Py,

implies, The equilibrium condition,

where MUx and MUy are the Marginal Utilities of X and Y, Px and Py are the prices of product X and Y.

must be equal to MUm, i.e. Marginal utility of Money. It is at this point where the utility is maximum.

This is called the law of equi-marginal utility and it states that a consumer will so allocate his expenditure so that the utility gained from the last dollar spent on each commodity is equal.

I will be using the concept of consumers equilibrium to make my choices in buying two products because it will help me to analyse the total utility and satisfaction that I can get from both the goods and I can make a choice whether to buy the goods or not. I will only go for commodities that can maximize my utility.

answered by: anonymous