In case, a consumer consumes two goods, explain his equilibrium with the help of utility approach.
Dear Student
The consumer’s equilibrium in case of consumption of two goods is explained by the Law of Equi-Marginal Utility. As per this law, a consumer allocates his expenditure between two commodities in such a manner that the utility derived from each additional unit of the rupee spent on each of the commodities is equal to the marginal utility of money.
In case the price of one commodity rises, less of this commodity and more of the other commodities will be purchased so that the proportion will be restored. In the case of durable goods, it may not be possible to maintain proportionality.
Regards,
The consumer’s equilibrium in case of consumption of two goods is explained by the Law of Equi-Marginal Utility. As per this law, a consumer allocates his expenditure between two commodities in such a manner that the utility derived from each additional unit of the rupee spent on each of the commodities is equal to the marginal utility of money.
In case the price of one commodity rises, less of this commodity and more of the other commodities will be purchased so that the proportion will be restored. In the case of durable goods, it may not be possible to maintain proportionality.
Regards,