IMPORTANCE AND MEANING OF CONSUMER EQUILIBRIUM
The term equilibrium defines a state of rest from where there is no tendency to change anything. A consumer is observed to be in the state of equilibrium when he/she does not aspire to change his/her level of consumption i.e. when he/she attains maximum satisfaction. Therefore, consumer equilibrium refers to the situation when the consumer has attained maximum possible satisfaction from the number of commodities purchased given his/her income and price of the commodity in the market.
A consumer is said to be in an equilibrium state when he feels that he cannot change his situation either by earning more or by spending more or by changing the number of things he buys. A rational consumer will purchase a commodity up to the point where the price of the commodity is equivalent to the marginal utility obtained from the thing.
If this condition is not fulfilled, the consumer will either purchase more or less. If he purchases more, the MU will fall and situations will arise when the price paid will exceed marginal utility. In order to prevent negative utility, i.e. dissatisfaction, he will reduce his consumption and MU will go on increasing till price = marginal utility.
On the other hand, if marginal utility is greater than the price paid, the consumer will enjoy additional satisfaction from the unit he has consumed beforehand. This will urge him to buy more and more units of commodity leading to successive falls in MU till it gets equal to price. Hence, by buying more or less quantity, a consumer will eventually reach a point where P= MU. Here, his total utility is maximum.
Importance of Consumer Equilibrium
- It enables consumers to maximize his/her utility from the consumption of one or more commodities.
- It helps the consumers to arrange the combination of two or more products based on consumer taste and preference for maximum utility.