Assumptions: Commodities are homogeneous; There is no gap between consumption of different units; Every consumer wants to maximize utility; The taste and preferences of the consumer are remains the same during the period of the consumption; Marginal utility of money remains the same. Principle of Equi- Marginal Utility (Consumer Equilibrium): The principle of equi- marginal utility states that the consumer will distribute his money income in such a way that the utility derived from the last spent on each good is equal. Saudi Riyal In other the consumer is in equilibrium position when marginal utility of money spent on each good words is same. Equilibrium of the Consumer: Under the condition of the consumer In case of Single Commodity: single commodity (x) is in equilibrium when the marginal utility of good x is equal to price of x. That is, MUx = Px If MUx > Px; the consumer can increase his welfare or satisfaction by purchasing more units of x. If MUx < Px; the consumer can increase his total satisfaction by cutting down the quantity of x. If there are the condition for equilibrium In case of More Commodity: more commodities, of the consumer is the equality of the ratios of the marginal utilities of the individual commodities to their prices. That is, = = = = …….. λ Where denotes the marginal utility of the last riyal spent on each good. λ Derivation of the Demand Curve:
Assumptions: Commodities are homogeneous; There is no gap between consumption of different units; Every consumer wants to maximize utility; The taste and preferences of the consumer are remains the same during the period of the consumption; Marginal utility of money remains the same. Principle of Equi- Marginal Utility (Consumer Equilibrium): The principle of equi- marginal utility states that the consumer will distribute his money income in such a way that the utility derived from the last Saudi Riyal spent on each good is equal. In other words the consumer is in equilibrium position when marginal utility of money spent on each good is same. Equilibrium of the Consumer: In case of Single Commodity: Under the condition of single commodity (x) the consumer is in equilibrium when the marginal utility of good x is equal to price of x. That is, MUx = Px If MUx > Px; the consumer can increase his welfare or satisfaction by purchasing more units of x. If MUx < Px; the consumer can increase his total satisfaction by cutting down the quantity of x. In case of More Commodity: If there are more commodities, the condition for equilibrium of the consumer is the equality of the ratios of the marginal utilities of the individual commodities to their prices. That is, = = …….. = = λ Where λ denotes the marginal utility of the last riyal spent on each good. Derivation of the Demand Curve: