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The Basics of Consumer Equilibrium Explained Simply

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The idea of consumer equilibrium can sometimes seem a bit confusing upon first hearing. This is often because it has been explained in a complicated manner. The reality is that consumer equilibrium does not need to be such a complex concept. Hopefully by the end of this article you will have a much better idea about what is meant.

What is Consumer Equilibrium?

Before any attempt to define consumer equilibrium it is important to understand what is meant by utility. This word utility is used in economics to refer to the ability of some product or service to satisfy our desires. One of the ideas behind consumer equilibrium is that humans will buy different products and services in such a way as to maximize their total utility; in layman’s terms they will try to get the biggest bang from their money.

Unfortunately most people are restrained by their income as to how many goods and services they can buy; they can only create a certain amount of utility. In fact it isn’t only income but also other demographic variables that will determine how many products and services they can buy.

This all means that the individual will need to make choices about what products and services they buy in an attempt to get the maximum utility. The point at which a person’s income is spread in such a way that they could not possibly increase their utility is referred to as consumer equilibrium.

An Example of Consumer Equilibrium

Imagine that you had £10 and you want to buy apples and oranges. Oranges cost £1 and apples cost 50p. Now you could purchase 20 apples for your £10 but that won’t give you maximum customer utility because you also wanted oranges. The best way to find the consumer equilibrium would be to assign a utility value to an apple and orange; of course you would also need to take into account marginal utility ( http://www.econguru.com/law-of-diminishing-marginal-utility/ ) because things mean slightly less to us the more we have of them. You would find the consumer equilibrium by reaching the point where the purchase of a certain number of apples of oranges produced the highest possible utility value.

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