Consumer's Equilibrium in One Commodity Case

In the case of one commodity, the consumer's equilibrium refers to the point at which the consumer maximizes their satisfaction or utility from consuming that particular commodity. The consumer's equilibrium is determined by the intersection of the consumer's budget constraint and the indifference curve.

1. Budget Constraint:
The consumer's budget constraint represents the different combinations of the commodity that a consumer can afford given their limited income and the prices of the commodity. It can be represented by the equation:

Budget constraint = Price of the commodity × Quantity of the commodity consumed ≤ Consumer's income

2. Indifference Curve:
An indifference curve is a graphical representation of different combinations of two goods that yield the same level of satisfaction to the consumer. It shows the consumer's preference for different combinations of the commodity. Indifference curves are typically downward sloping and convex to the origin.

3. Consumer's Equilibrium:
The consumer's equilibrium occurs at the point where the consumer's budget constraint is tangent to an indifference curve. This point represents the maximum level of satisfaction the consumer can achieve with their given income and the price of the commodity. At this point, the consumer is allocating their income in such a way that the marginal utility per unit of money spent is equal for all the units of the commodity consumed.

4. Marginal Utility:
Marginal utility refers to the additional satisfaction a consumer derives from consuming an additional unit of a commodity. It diminishes as the consumer consumes more units of the commodity. The consumer's equilibrium is achieved when the marginal utility per unit of money spent is equal for all the units of the commodity consumed.

5. Deriving Consumer's Equilibrium:
To determine the consumer's equilibrium, we need to compare the marginal utility per unit of money spent for each unit of the commodity consumed. The consumer should allocate their income in such a way that the marginal utility per unit of money spent is equal for all units of the commodity.

The consumer's equilibrium can be derived by following these steps:
- Plot the indifference curves representing the consumer's preference for different combinations of the commodity.
- Draw the consumer's budget constraint.
- Identify the point where the budget constraint is tangent to an indifference curve.
- At this point, the consumer is in equilibrium, maximizing their satisfaction given their budget constraint.

Consumer's Equilibrium in Two Commodity Case

In the case of two commodities, the consumer's equilibrium refers to the point at which the consumer maximizes their satisfaction or utility from consuming both commodities simultaneously. The consumer's equilibrium is determined by the intersection of the consumer's budget constraint and the highest attainable indifference curve.

1. Budget Constraint:
The consumer's budget constraint represents the different combinations of the two commodities that a consumer can afford given their limited income and the prices of the commodities. It can be represented by the equation:

Budget constraint = (Price of commodity 1 × Quantity of commodity 1 consumed) + (Price of commodity 2 × Quantity of commodity 2 consumed) ≤ Consumer's income

2. Indifference Curves:
Indifference curves for two commodities represent the consumer's preferences for different combinations of the two commodities. They are typically downward sloping and convex to the origin, indicating diminishing marginal rate of substitution (MRS) between the two commodities.

3. Consumer's Equilibrium:
The consumer's equilibrium occurs at the point where the consumer's budget constraint is tangent to the highest attainable indifference curve. This point represents the maximum level of satisfaction the consumer