What is consumer’s equilbrium? Explain the conditions of consumer’s equilibrium assuming that the consumer consumes only two goods.

OR

Distinguish between an inferior good and a normal good. Explain the effect of change in income on each giving suitable examples.

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Solution

Consumer’s equiibrium means allocation of income by a consumer on goods and services in a manner that gives him maximum satisfaction.

The two conditions of consumer’s equibrium are :

(i) Ratio of marginal utility to price in case of each good is the same i.e.

$\frac{M U x}{P x} = \frac{M U y}{P y}$

(ii) MU of a good decreases as more of it is consumed.

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What is consumer’s equilbrium? Explain the conditions of consumer’s equilibrium assuming that the consumer consumes only two goods. OR Distinguish between an inferior good and a normal good. Explain the effect of change in income on each giving suitable examples.

What is consumer’s equilbrium? Explain the conditions of consumer’s equilibrium assuming that the consumer consumes only two goods.

OR

Distinguish between an inferior good and a normal good. Explain the effect of change in income on each giving suitable examples.