Question

The following table shows the marginal utility derived from the purchase of books. The price of the book is ₹ 500. Draw a diagram to explain consumer's equilibrium where MU = P.

Number of books	MU
1	700
2	600
3	500
4	400
5	300

Answer 1

The following diagram shows consumer equilibrium with MU_x = P_x. The graphic plots the price and MU of the books on the Y-axis, while the number of volumes consumed is on the OX axis. The table indicates that MU derived decreases with each extra unit of books ingested.

The consumer equilibrium condition states that the customer can maximise his happiness by consuming the units of a certain product where MU_x = P_x, or the price of the commodity equals the marginal utility obtained from its consumption. When the consumer purchases three units of books, the equilibrium position is depicted in the diagram at point E, where prices (Rs 500) equal the marginal utility derived (500).