ECN 102 Lecture Notes - Lecture 10: Equilibrium Point, Indifference Curve, Demand Curve
Document Summary
According to the cardinalist approach a consumer is at equilibrium where: Marginal utility of a good x is equal to its price. When mux < px the consumer tendency in this case is reduce consumption of the product and hence increase the marginal utility units until the equality is restored. When mux > px the consumer tendency is to increase consumption and hence the, marginal utility diminishes until the utility equality is restored. Generally given to consumer goods x and y equilibrium requires. The above equation depicts the equilibrium condition according to the cardinalist. Suppose the price of good x raises other factors remaining then the acts to restore the equilibrium. This is only possible if the consumer reduces the consumption of good x. from this illustration, law of demand is seen to work to maintain the consumer at the equilibrium point. That should the price rise the consumer must reduce consumption for the equilibrium to be maintained.
