Consumer equilibrium refers to a situation in which a consumer can maximize their satisfaction by allocating the given income among various commodities.
They allocate their income in such a way that it gives them maximum desired satisfaction and do not intend to alter their expenditure.
Single Commodity :
Consumers attain satisfaction when they maximize the total utility derived from the given amount of money.
In case of a single commodity, the condition for equilibrium is that the marginal utility of money must be equal to the marginal utility of the commodity.
To maximize total utility, they spend all the money on the commodity whose marginal utility is equal to the price.
This will ensure that there will be no money left with them and they derive maximum satisfaction from the commodity.
Final Answer :
A consumer is in equilibrium when the consumer has achieved maximum satisfaction with their given income..
In other words, a consumer is in equilibrium at that point where the consumer has achieved maximum satisfaction and does want to change the way in which their spend.
The conditions for consumer equilibrium are:
Total satisfaction or total utility derived from all units of a commodity purchased is maximum, i.e. MU=0
The consumer’s outlay on all commodities is equal to his total income.
The consumer has no desire to purchase any more of the goods in question or any less of the goods.
Tastes and habits remain constant over time for them.
A rational consumer will always act in such a way to maximize satisfaction or minimize dissatisfaction.
Consumers are well informed about the prevailing price of various products and their availability in the market.
Consumers have a fixed amount of time at their disposal for purchasing goods and services.
In the case of a Single commodity :
For a single commodity, the condition for equilibrium is that the marginal utility of money (M.U.m) must be equal to the marginal utility of the commodity (M.U.).