Consumer equilibrium refers to a situation where a consumer maximizes his/her satisfaction or utility subject to his/her limited income and the prices of goods and services. The ordinal approach to consumer equilibrium is based on the assumption that the consumer is able to rank his/her preferences for goods and services. The following are the steps involved in explaining consumer equilibrium by ordinal approach:

1. Consumer preferences

The first step in the ordinal approach to consumer equilibrium is to assume that the consumer has preferences for different goods and services. These preferences can be represented by a utility function, which measures the satisfaction or happiness derived from consuming different combinations of goods and services.

2. Marginal utility

The second step is to assume that the consumer experiences diminishing marginal utility as he/she consumes more of a particular good or service. This means that the additional satisfaction or utility derived from consuming an additional unit of a good or service decreases as the quantity consumed increases.

3. Budget constraint

The third step is to assume that the consumer has a limited income and faces prices for goods and services in the market. This means that the consumer has to make choices about how to allocate his/her income among different goods and services. The budget constraint can be represented by the equation:

Income = Px X + Py Y

Where Px and Py are the prices of goods X and Y, and X and Y are the quantities of goods consumed.

4. Consumer equilibrium

The fourth step is to find the consumer equilibrium, which is the combination of goods and services that maximizes the consumer's utility subject to his/her budget constraint. This can be done by comparing the marginal utility per dollar of each good and service.

- If the marginal utility per dollar of good X is greater than the marginal utility per dollar of good Y, the consumer should consume more of good X and less of good Y.
- If the marginal utility per dollar of good Y is greater than the marginal utility per dollar of good X, the consumer should consume more of good Y and less of good X.
- If the marginal utility per dollar of both goods is equal, the consumer is in equilibrium and is consuming the optimal combination of goods.

The consumer equilibrium can be represented graphically by the indifference curve and budget line. The indifference curve shows all the combinations of goods and services that give the consumer the same level of satisfaction or utility. The budget line shows all the combinations of goods and services that the consumer can afford given his/her limited income and the prices of goods and services.

Conclusion:

In conclusion, the ordinal approach to consumer equilibrium is based on the assumption that the consumer has preferences for different goods and services and experiences diminishing marginal utility as he/she consumes more of a particular good or service. The consumer equilibrium is the combination of goods and services that maximizes the consumer's utility subject to his/her budget constraint. The consumer equilibrium can be represented graphically by the indifference curve and budget line.

Definition: The Ordinal Approach to Consumer Equilibrium asserts that the consumer is said to have attained equilibrium when he maximizes his total utility (satisfaction) for the given level of his income and the existing prices of goods and services.