Essays on Concepts of Consumer Equilibrium, Price Elasticity of Demand and Income Consumption Curve Report

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The paper "Concepts of Consumer Equilibrium, Price Elasticity of Demand and Income Consumption Curve" is a wonderful example of a report on macro and microeconomics. This paper discusses concepts of consumer equilibrium, price elasticity of demand and income consumption curve. Consumer equilibrium refers to the optimal combination of two goods or services that a consumer will choose so as to attain the greatest utility or satisfaction. Price elasticity of demand means the change in the quantity of a good or service demanded, with respect to change in the price of the good or service.

Finally, income consumption curve is a curve that shows the different point of equilibrium due to changes in the consumer’ s level of income. Consumer EquilibriumConsumer equilibrium refers to the point where the budget line just touches, or is tangent to, an indifference curve. Putting the budget line on the indifference map allows us to decide the one combination of services and goods that the consumer is both willing and able buy. Any combination of goods or services that lies below or on the budget line is within the consumer’ s budget.

Consumer equilibrium therefore refers to the combination that the consumer will choose in order to yield the greatest satisfaction or utility (Boyes & Melvin, 2010, p. 142). Essentially, a consumer will maximise the satisfaction that will be derived from consuming a combination of services or goods, given the prices of such goods or services and the income by selecting that combination that must completely exhaust the budget and at which the amount of a good or service that the consumer is willing to give up is equal to the amount of the same good or service that will be required by the market (Arnold, 2010, p.

150). As highlighted above, this point must touch or be in tangent with the budget line as shown in the figure below. Figure 1: Illustration of the consumer equilibriumIn the figure above, the bold diagonal line is the budget line. Lines l1, l2 and l3are the indifference curves. These curves show all the possible combinations of two goods or services that give the consumer the same degree of satisfaction or total utility (Boyes & Melvin, 2010, p.

143). The points below the budget line indicate the attainable combinations of the consumer while the points above the line represent the unattainable combinations with respect to the consumer.

References

Arnold, RA 2010, Microeconomics, 10th edn, Cengage Learning, New York.

Boyes, W & Melvin, M 2010, Microeconomics, 8th edn, Cengage Learning, New York.

Chauhan, S P S 2009, Microeconomics: An Advanced Treatise, PHI Learning Pvt. Ltd., New Delhi.

Frank, R H & Bernanke, B S 2004, Principles of Microeconomics, 2nd edn, The McGraw-Hill Group of Companies, New York.

Mankiw, N G 2011, Principles of Economics, 6th edn, Cengage Learning, New York.

Salvatore, D 1992, Schaum's Outline of Theory and Problems of Microeconomic Theory, 3rd edn, McGraw-Hill Professional, New York.

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