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Prices of the goods are given and remain constant.
The budget line (or price line) shows all the combinations of two goods that a consumer can purchase using their entire income at current market prices. consumer equilibrium class 11 notes free
| Units of Apple | MU (utils) | Price (₹) | Decision | | :--- | :--- | :--- | :--- | | 1 | 10 | 5 | MU > P → Buy | | 2 | 8 | 5 | MU > P → Buy | | 3 | | 5 | MU = P → STOP (Equilibrium) | | 4 | 2 | 5 | MU < P → Don’t buy | Prices of the goods are given and remain constant
↑ MU, P | | MU (falls as Q↑) | / | / | / | / Equilibrium at E (MU = P) | / | Price | / | Price line (horizontal) (P) | / | |/________|______→ Q* Quantity This analysis uses the Law of Equi-Marginal Utility
In reality, a consumer typically spends income on more than one good. This analysis uses the Law of Equi-Marginal Utility. A consumer is in equilibrium when they spend their limited income in such a way that the ratios of the marginal utility to the price of each good are equal for all goods purchased. The condition for equilibrium when buying two goods, X and Y, is: