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6. Theory of Consumer Demand: Cardinal U... > Consumers's Equilibrium: Cardinal Ut...

CONSUMERS'S EQUILIBRIUM: CARDINAL UTILITY APPROACH

A consumer attains his equilibrium when he maximizes his TU given his income, consumption expenditure and prices of commodities he consumes. Analysing consumer's equilibrium requires answering the question ‘how does a consumer allocate his money income to the various goods and services he consumes to arrive at his equilibrium?’ In this section, we explain how a consumer attains his equilibrium by applying the cardinal utility approach, first in single commodity case and then the multiple commodity case.

The cardinal utility approach or what is called also as the Marshallian approach to consumer's equilibrium is based on the following assumptions.

Assumptions

  1. Rationality. It is assumed that the consumer is a rational being in the sense that he satisfies his wants in order of their merit and the necessity. It means that he buys first a commodity which yields the highest utility and he buys last a commodity which gives the least utility.

  

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