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What is a budget line and how is it useful in reaching consumer equilibrium?
Wiki User
∙ 11y ago
it is a line showing all possible combinations of two goods(goods-1 and good-2) which a consumer can buy with his given money income and the price of the goods prevailing in the market.anywhere on the budget line the consumer spends his entire income on either good1 or good2 or both the goods. each point on the budget line indicates the different combinations of good1 and good2 which a consumer can buy with his income.
in indifference curve analysis consumer attains his equilibrium when the slope of price line/budget line is equal to the slope of indifference curve.equilibrium is attained at that point where ic curve is tangent to the price line.....
Wiki User
∙ 11y ago
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Why is the CPI a useful took for economists and business?
The CPI (consumer price index) is useful because it allows observation of the rate of inflation in a given economic region.
Because demand curve and supply curve always change market never attain equilibrium does this imply the concept of equilibrium is not useful?
Well it means that equilibrium is basically a dynamic process and it adjusts to the new situation where basic variables of the market has registered changes and the new endowment point becomes the need of the situation.
What is meant by dark side of consumer behavior?
people throwing things out that are perfectly useful to buy a replacement with marginal differences
Which economic indicator would be most useful for figuring out how much something you bought today cost ten years ago?
Consumer Price Index
Examples of law diminishing marginal utility and indifference curve?
Consumers Equilibrium through Law of EquiMarginal Utility The Law of Equi-Marginal Utility is an extension to the law of diminishing marginal utility. The principle of equi-marginal utility explains the behavior of a consumer in distributing his limited income among various goods and services. This law states that how a consumer allocates his money income between various goods so as to obtain maximum satisfaction. The principle of equi-marginal utility is based on the following assumptions: (a) The wants of a consumer remain unchanged. (c) The prices of all goods are given and known to a consumer. (d) He is one of the many buyers in the sense that he is powerless to alter the market price. (e) He can spend his income in small amounts. (f) He acts rationally in the sense that he want maximum satisfaction (g) Utility is measured cardinally. This means that utility, or use of a good, can be expressed in terms of "units" or "utils". This utility is not only comparable but also quantifiable. Suppose there are two goods 'x' and 'y' on which the consumer has to spend his given income. The consumer's behavior is based on two factors: (a) Marginal Utilities of goods 'x' and 'y' (b) The prices of goods 'x' and 'y' The consumer is in equilibrium position when marginal utility of money expenditure on each good is the same. The Law of Equi-Marginal Utility states that the consumer will distribute his money income in such a way that the utility derived from the last rupee spent on each good is equal. The consumer will spend his money income in such a way that marginal utility of each good is proportional to its rupee. The consumer is in equilibrium in respect of the purchases of goods 'x' and 'y' when: MUx = MUy Where MU is Marginal Utility and P equals Price If MUx / Px and MUy / Py are not equal and MUx / Px is greater than MUy / Py, then the consumer will substitute good 'x' for good 'y'. As a result the marginal utility of good 'x' will fall. The consumer will continue substituting good 'x' for good 'y' till MUx/Px = MUy/Py where the consumer will be in equilibrium. Thus this is also known as the law of substitution. Let us illustrate the law of Equi-Marginal Utility with the help of a table: The side table shows marginal utilities of goods 'x' and 'y'. Let us suppose that the price of goods 'x' and 'y' are Rs. 2/- and Rs.3/-. Then MUx/Px & MUy/Py are as follows: With a given income a rupee has certain utility to him. This is the Marginal Utility for him. Now the consumer will go on purchasing goods till the marginal utility of expenditure on each good becomes equal to the marginal utility of money to him. Thus the consumer will be in equilibrium at a point where: MUx = MUy = MUm MUm refers to Marginal Utility of Money Let us suppose that the given income of a consumer is Rs.19/-. With the given income suppose the marginal utility of money is constant at "Rs. 1 = 6 utils". By looking at the above table, it is clear that MUx/Px = 6 utils when he buys 5 units of good 'x' and MUy/Py = 6 utils when he purchases 3 units of good 'y'. Therefore the consumer will be in equilibrium when he is buying 5 units of good 'x' and 3 units of good 'y' and will be spending Rs.19/- on them. This law can be explained with the help of the following diagram: In the above diagram marginal utility curves of good 'x' & 'y' slope downwards. Marginal Utility of Money is confident at OM. MUx/Px = OM when OK amount of good 'x' is purchases and MUy/Py = OM when OH amount of good 'y' is purchased. Thus the consumer will be in equilibrium when he purchases OK amount of good 'x' and OH amount of good 'y' and then: This law is based on the assumption that utility can be cardinally measurable. But in actual practices it cannot be measured in such cardinal numbers. It is also assumed that marginal utility of money is constant. But this is not true because when the quantity of money increases, its marginal utility will diminish. This law is not applicable in the case of indivisible goods like TV sets, refrigerators, etc. Normally a person will buy only a single unit of such goods. Hence it is ridiculous to prepare an individual marginal utility schedule for such goods. However, this principle is useful to a consumer to obtain maximum satisfaction and it is also helpful to a producer to get maximum profits. Awais
How is budget line useful in reaching consumer equilibrium?
Budget line helps the consumer to decide to purchase a particular combination that falls in his budget line although a different combination is more desirable as it will give more satisfaction level.
When is a budget useful?
Budget is useful when you are running out of money and have to cut spending.
The most useful budget figures are developed by?
Figures relating to a budget that are developed from the "bottom-up" following a participatory process are going to be the most useful.
How research useful in the economics?
Research is useful in economics to know the need of the consumer.
A budget is useful only if you?
Apply it and monitor its purpose on a regular basis
Maxwell's Laws have the requirement of equilibrium. Why is equilibrium ignored in the application of such laws e.g. fractional wavelength antennas when a wavelength represents equilibrium?
Because of practical considerations. Unit wavelength antennas are usually impractical. Compromises are needed to provide useful solutions.
What do you get from rocks?
Valuable minerals, useful material, and eventually consumer products.
What does Christian Consumer Credit Counseling provide?
It is a process that involves offering education to consumers about how to avoid incurring debts that cannot be repaid through establishing an effective Debt Management Plan and Budget.
What best explains why a budget is useful?
Budgets help people reach their financial goals.
Where can one find consumer reviews for the company called Buyowner?
One can find consumer reviews for the company called Buyowner online. Some of the useful websites are My Three Cents, Pissed Consumer and Ripoff Report.
What is good invention someone should invent?
A good invention is something that is very useful and needed by the consumer. Advancements in older inventions are always useful as well.
Why is the CPI a useful took for economists and business?
The CPI (consumer price index) is useful because it allows observation of the rate of inflation in a given economic region.
