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Double Commodity Approach (Law of Equi-Marginal Utility) - Consumer Equilibrium, Microeconomics Video Lecture - Class 12

FAQs on Double Commodity Approach (Law of Equi-Marginal Utility) - Consumer Equilibrium, Microeconomics Video Lecture - Class 12

1. What is the double commodity approach in microeconomics?
The double commodity approach, also known as the law of equi-marginal utility, is a concept in microeconomics that focuses on consumer equilibrium. It states that a consumer achieves equilibrium by allocating their limited income between two different commodities in such a way that the marginal utility derived from the last dollar spent on each commodity is equal.
2. How does the law of equi-marginal utility help in achieving consumer equilibrium?
The law of equi-marginal utility helps in achieving consumer equilibrium by guiding consumers to allocate their income in a way that maximizes their total utility. When the marginal utility derived from the last dollar spent on one commodity is greater than the marginal utility derived from the last dollar spent on the other commodity, the consumer reallocates their income to increase the marginal utility of the second commodity until both marginal utilities are equal.
3. Can you provide an example to illustrate the double commodity approach?
Certainly! Let's say a consumer has $100 to spend on two commodities, A and B. The marginal utility derived from the last dollar spent on commodity A is 10, and the marginal utility derived from the last dollar spent on commodity B is 8. According to the law of equi-marginal utility, the consumer should reallocate their spending to increase the marginal utility of commodity B. They may choose to spend $60 on commodity A and $40 on commodity B, where the marginal utility of both commodities becomes 8.
4. What happens if a consumer does not achieve equilibrium according to the double commodity approach?
If a consumer does not achieve equilibrium according to the double commodity approach, it means that their allocation of income between the two commodities is not optimizing their total utility. In this case, the consumer may experience a lower overall satisfaction or utility level. To improve their consumer equilibrium, they would need to adjust their spending patterns to equalize the marginal utilities derived from the last dollar spent on each commodity.
5. Are there any limitations to the double commodity approach?
Yes, there are a few limitations to the double commodity approach. Firstly, it assumes that a consumer's income and the prices of the two commodities remain constant, which may not always be the case in the real world. Additionally, it assumes that the consumer's preferences and marginal utilities remain unchanged, which may not hold true over longer periods. Lastly, the approach does not account for factors such as income elasticity, substitution effects, or the possibility of diminishing marginal utility.
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