Consumer equilibrium -cardinal theory, Macroeconomics

Consumer Equilibrium:

According to our assumption for 'x' units consumption of the commodity, gross utility obtained by the consumer is U(x).But for this, the consumer must spend px.x units of money income if px be the price of the commodity 'x', which is given to the consumer. Since from assumption 6, λ represents fall in utility due to one unit fall in money income, the net utility of the consumer is given by 390_Consumer Equilibrium3.png and px are given to the consumer. So consumer's objective is to maximise N(x) by choosing 'x'. For that we take the first derivative of N(x) and set that equal to zero, 1564_Consumer Equilibrium.png.Or, we get ()1821_Consumer Equilibrium2.png From this first order condition, we can derive the optimum value of 'x' which is (say) x* = x*(px,λ). The second order condition for utility Maximisation requires 1870_Consumer Equilibrium1.png which is ensured by the assumption of falling MUx.  

758_Consumer Equilibrium4.png

Posted Date: 10/26/2012 2:17:46 AM | Location : United States







Related Discussions:- Consumer equilibrium -cardinal theory, Assignment Help, Ask Question on Consumer equilibrium -cardinal theory, Get Answer, Expert's Help, Consumer equilibrium -cardinal theory Discussions

Write discussion on Consumer equilibrium -cardinal theory
Your posts are moderated
Related Questions

Suppose a new production method will be implemented if a hypothesis test supports the conclusion that the new method reduces the mean operating cost per hour. a. State the appro

Why is it important to study the internal resources, capabilities, and activities of firms? What insights can be gained?


Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (The price floor is officially set at $16.10 per hu

define history and full deatil of command economy

An owner can lease her building for $100,000 per year for the next three years. The explicit cost of maintaining the building is $35,000, and the implicit cost is $50,000. All reve

Using Simple Keynesian Model, discuss the effect of the following: a) An increase in govt. expenditure. b) A decrease in lump sum taxes. In this context compare the govt.

A firm's current profits are $1,300,000. These profits are expected to grow indefinitely at a constant annual rate of 3 percent. If the firm's opportunity cost of funds is 6 percen

Application of Theory of Consumer Behavior As already discussed earlier, the theory is an important tool to interpret and analyse demand curves. Apart from its usefulness as a