Consumer's Equilibrium according to Allen and Hicks
Consumer's equilibrium according to Allen and Hicks is a combination of goods and services that maximizes the consumer's total utility or satisfaction within the constraints of their budget. This equilibrium can be achieved through the following conditions:
- Tangency of IC and budget line: According to Allen and Hicks, consumer equilibrium occurs when the indifference curve (IC) is tangent to the budget line. This means that the consumer is maximizing their utility by consuming a combination of goods and services where the marginal rate of substitution (MRS) equals the price ratio of the goods.
- MU is equal to price: Another condition for consumer equilibrium according to Allen and Hicks is that the marginal utility (MU) of the goods consumed should be equal to the price of the goods. This ensures that the consumer is allocating their budget in a way that maximizes their satisfaction.
- TU maximum and MU zero: Allen and Hicks also argue that consumer equilibrium is achieved when total utility (TU) is maximized and marginal utility (MU) is zero. This means that the consumer is consuming goods up to the point where the additional satisfaction gained from consuming one more unit of a good is zero.
In conclusion, all of these conditions together represent the consumer's equilibrium according to Allen and Hicks, where the consumer is maximizing their satisfaction given their budget constraints and preferences.