Consumers Equilibrium

Question 1

Meaning and objective of a consumer?

Answer 1

A consumer is an economic agent who consumes or purchases goods or services to satisfy his/her wants.
The satisfaction of wants is the beginning and end of all economic activities.
The objective of a consumer is to get maximum satisfaction from the expenditure incurred on a commodity.

Question 2

What is utility?

Answer 2

It is the want satisfying power of a commodity. It refers to the amount of satisfaction received after consumption of a commodity.

Question 3

What are the characteristics of utility?

Answer 3

1. Utility depends on urgency and intensity of want: More intensity implies higher utility. Ex: a pen has more utility during exams than in summer vacation
2. Utility is subjective: A commodity doesn’t have a fixed utility as utility keeps changing in time and place. The same consumer may derive higher or lower utility from the same commodity depending on on the time and place
3. Utility is measurable: Cardinal and ordinal utility
4. Utility is not essentially useful: higher utility doesn’t mean greater usefulness, drugs have high utility but aren’t useful

Question 4

What are the measure of utility?

Answer 4

1. Cardinal Utility: Given my Marshal. Measures utility in a quantity. The units of utility are called utils. Measured in absolute numbers. Marginal utility curve is used to explain consumer equilibrium.
2. Ordinal Utility: Given by hicks and allen. Measure utility in a qualitative, ranking order. It is measured in ranks. Indifference curve is used to explain consumer equilibrium.