DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : H. Srividya
Designation : SL/CCP
Branch : Commercial & Comp.Practice
Year/Semester : V Semester
Institution : GPW,Palamaner,Chittoor Dist.
Subject : Business Economics
Sub. Code : CCP-502
Topic : Consumer Surplus
Duration : 50 Min.
Sub-Topic : Consumer’s Equilibrium
Teaching Aids : PPT
CCP502.23 1
Objectives
On Completion of this period, you would be able to:
 Explain the meaning of Consumer’s Equilibrium
 Describe the consumer’s equilibrium with one
commodity and
 The introduction of the Law of Equi- Marginal
Utility

CCP502.23 2
Recap
 In the previous class, we have discussed about:
 The illustration of law of Diminishing marginal
utility with utility table and graph

CCP502.23 3
Consumer’s Equilibrium

 Equilibrium
 securing maximum satisfaction
 point of maximum satisfaction

CCP502.23 4
Equilibrium with one commodity
Y-Axis
Price and Marginal

MU
CURVE
B
C D
Utility

P
E F

O M N Q X-Axis
Quantity of
CCP502.23 5
Commodity
 Equilibrium with one commodity

X-axis – Quantity
Y
Y-axis – Price &
Marginal Utility MU
MU Curve slopes CURVE

Price and B
Marginal
downwards
C D
Utility
P
E F

O M N Q
X
Quantity of
CCP502.23 Commodity 6
Equilibrium with one commodity

 OP Y
 Market price
 Per unit MU
CUR

Price and
 Constant during

Marginal
VEB
period of
C D

Utility
consumpution P
 At OM units E F
 Utility = BM MN Q X
O
 Price paid = EM
Quantity of
 Utility > price
Commodity
CCP502.23 7
Equilibrium with one commodity

 At ON units
Utility = CN Y
 Price paid = OP=CN
MU
Utility = Price paid A
CURV
 If he purchases one
Price and
E B

Marginal
more unit
C D

Utility
At OQ units P
Utility < price E F
(FQ<DQ)
O M N Q
X
Quantity of
CCP502.23 Commodity 8
 Equilibrium with one commodity

Y
At OM units
 Total Utility = OABM MU
A
 Spending = OPEM CUR

Price and
Marginal
 Surplus utility = PABE VEB
C D

Utility
P
E F

O MN Q
X
Quantity of
Commodity
CCP502.23 9
 Equilibrium with one commodity

At ON units
 Total Utility = OACN Y
 Spending = OPCN
 Surplus utility = PAC MU
A
CURV
At OQ units
Price and
E B

Marginal
 Total Utility < Total C D

Utility
Spending P
E F
 Deficit Utility = CDF
O M N Q
X
Quantity of
CCP502.23 Commodity 10
 Equilibrium with one commodity

As PAC>PABE
Consumer will get Y
Maximum satisfaction at
MU
ON units of purchase A
CURV
He attains equilibrium
Price and
E B

Marginal
at that point of C D

Utility
purchase P
E F

O M N Q
X
Quantity of
CCP502.23 Commodity 11
The Law of Equi-Marginal Utility
 Explains
 Consumer’s Equilibrium
 Developed by Gossen
 An economist
 Called “Gossen’s Second Law”

CCP502.23 12
The Law of Equi-Marginal utility is
also known as

 The Law of Substitution

 The Law of Maximum Satisfaction
 The Principle of Marginal Comparison

CCP502.23 13
Law of Equi-Marginal Utility
 Explains behaviour of consumer
 Consumer has
 Several wants
 Limited income
 to get maximum satisfaction

CCP502.23 14
Law of Equi-Marginal Utility
Consumer
 Purchases commodities
 By comparing their marginal utilities
As he goes on having a commodity
 its marginal utility gradually diminishes
A rational consumer
 doesn’t pay more
 for less utility

CCP502.23 15
Law of Equi-Marginal Utility
 If the Marginal Utility is more, he will buy the commodity
as he will gain more with his spending
 He will stop buying just when the Marginal Utility is equal
to price

CCP502.23 16
Summary
In this class, we have discussed about
 Meaning of Equilibrium
 Consumer Equilibrium with one commodity and
 The introduction about the Law of Equi-Marginal Utility

CCP502.23 17
QUIZ

1) Attaining maximum satisfaction is called

a) Total Utility
b) Marginal Utility
c) Equilibrium

CCP502.23 18
1) The Law of Equi-Marginal Utility was first
developed by
a) Marshall
b) Gossen
c) Hicks

CCP502.23 19
1) Law of Equi-Marginal Utility is also known as

a) Law of Substitution
b) Law of Demand
c) Law of Diminishing Marginal Utility

CCP502.23 20
Frequently asked questions in the
examinations

1. Define Consumer’s Equilibrium.

CCP502.23 21
Assignment
1. Draw the diagram showing consumer
equilibrium and explain

CCP502.23 22