Answer to Question #201441 in Microeconomics for Zanele Dube

Question

Use a graph to illustrate and explain the concept of consumer equilibrium for a consumer ,Johannes ,who consumers only two goods :Biltong(vertical axis)and beer (horizontal axis)

Answer 1

Solution:

Consumer equilibrium means a state of maximum satisfaction. Consumer's equilibrium is a situation when a consumer spends his given income on the purchase of one or more commodities in such a way that he gets the maximum satisfaction and has no urge to change the level of consumption.

It can be depicted by the below graph:

Johannes is at equilibrium at point E, where the indifference curve is tangent with the budget line. This is the equilibrium consumption bundle which is the affordable bundle that yields the highest level of satisfaction.