what changes does it make to the equation of consumers equilibrium when he decides to spend his income on two commodity rather than one
When the consumer decides to spend his income on two commodities rather than one commodity, his equilibrium is determined by law of equi-marginal utility. Let us explain this concept with the help of an example. Suppose a consumer is consuming only one commodity, that is, good X. In that case, his equilibrium can be determined where the marginal utility of a rupee spent on the commodity becomes equal to the marginal utility of money, that is,
Now, when consumer starts consuming two commodities,say Good-X and Good Y, his equilibrium shall be determined at at point where the utility ​derived from each additional unit of the rupee spent on each of the commodities is equal, that is
The above condition is referred as law of equi-marginal utility.
Now, when consumer starts consuming two commodities,say Good-X and Good Y, his equilibrium shall be determined at at point where the utility ​derived from each additional unit of the rupee spent on each of the commodities is equal, that is
The above condition is referred as law of equi-marginal utility.