The consumer balance on the card of indifference is ... Features of formation of an equilibrium point

Economics is an exact science. Therefore, many of the parameters studied in the process of mastering an object are easiest to perceive in the form of graphs and illustrations. One such graphical parameter is the indifference curve and its main points characterizing consumer behavior. Features of this functional are most conveniently demonstrated graphically.

How is consumer behavior determined?

To find out what consumer equilibrium is on an indifference map , this definition should be analyzed for each word.

Any marketer confidently will name three main factors characterizing the behavior of a potential buyer. This is the value of the purchase, its value and the income of the buyer. Since the consumer and his purchase are the most important priorities for any trading network, let us consider these factors in more detail.

Utility is a factor that determines the ability of a product or service to satisfy a human need. This parameter can be divided into two parts:

• General utility - it measures the totality of useful qualities of all selected goods;
• Marginal utility - lists the useful qualities of each unit of the product.

Both parameters provide the basis for understanding what constitutes the consumer equilibrium on the indifference map. This value is determined from the fact that the total and marginal utility are related to each other in inverse proportion. The increase in the consumption of one commodity increases its overall utility, but at the same time its marginal utility diminishes.

This law is well known to economists and marketers. In textbooks, it is called the law of diminishing utility.

Simple examples

How does it look in practice? Very simple. Let's say you do not have a toy car. You are planning to buy it, and for this, evaluate each interesting proposal. For you it has the maximum marginal utility - so much you are desired, and minimal overall. But as soon as you bought a car, the need for the next drops sharply. Thus, the marginal utility of the machine as a unit of goods falls for you, and the total - increases.

Consumer preferences

Starting from the definition of utility, we must determine what we mean by this term. There are several criteria for determining this concept. One of them is ordinal, evaluates sets of various commodity characteristics from the point of view of the consumer. To apply this method, two sets are used that are equally useful to the buyer. All sets with the same utility are graphically displayed using an indifference curve. This curve is called because of the given characteristics and cost, these products will be equally attractive to the buyer and, in the end, it does not matter what the final choice will be. For a single commodity, the equilibrium point can not be chosen: the more goods participate in the sample, the more accurate the data of the indifference curves.

Charts and functions

Visually, the indifference curve on the graph is displayed like this:

Smooth curves, located on the right axis of ordinates, show the preferences of potential customers when buying a particular product. These curves have certain properties, namely:

• The higher and to the right the curve is, the more likely that the buyer will prefer this particular set of advantages;
• All indifference curves are characterized by a negative bias. If any advantage has ceased to be so, in the eyes of the buyer other sets of goods also change their properties;
• Curves never intersect.

The set of curves defines an indifference map.

What is consumer equilibrium?

The definition of equilibrium is directly related to the material possibilities of the potential buyer. Unfortunately, for each buyer the boundaries of the desired are in the area of budget constraints.

If the consumer has aggregate income in D units, to which he can pay for the characteristics of goods A and B, the value of which is equal to St _a and St _, then the budget constraint can be calculated by the formula:

D = St _a A × A + St _in × B;

The budget line on the indifference card determines the combinations of all the characteristics of the goods available to the consumer at a given cost and income level. Growth in the income of the buyer shifts the budget line to the right - more goods become more accessible. The drop in income moves the budget line to the left on the graph. The intersection of the budget line and the indifference curve will give a new value, which is called the consumer's optimum. The optimum is directly related to the consumer equilibrium on the indifference map. What is this value, and how can it be applied in practice?

As the name implies, the point of indifference characterizes the personal, subjective opinion of the buyer about the benefits of this product together with the willingness to buy it. The consumer equilibrium on the indifference map is the place of contact of the "indifferent" curve with direct budgetary opportunities. All curves that are located on the graph above and to the right of the point of indifference will not be of interest to the buyer because the possibility of acquiring these goods is limited by the available income. Thus, we can derive a simple definition: the consumer equilibrium on the indifference card is the optimal ratio of the characteristics of the product and its price, in which the potential consumer will necessarily make a purchase.

What can the analysis of consumer equilibrium show?

This information is directly related to how the consumer equilibrium is defined on the indifference map. This is one of the main points of the chart, designed for a detailed analysis of current sales. The marketer, who forms the value of the goods for the end user, must correctly determine where the consumer equilibrium is on the indifference map. This value serves as an excellent guide for the possible price range of a product or service.

Consumer balance on the card of indifference is the ability to correctly determine the probable sales volumes and calculate the required commodity stock, provided that the supply of this product is discrete. Thus, from the abstract scientific concept, the consumer equilibrium point becomes an effective tool with which you can calculate the behavior of the buyer and increase sales.