The balance of the consumer is that point at which a consumer finds its greatest utility for prices and a given income. The consumer is in balance when with the rent or budget that he has when he can acquire the goods that report the greatest satisfaction.
The balance is obtained from that combination of goods X and Y, which being within reach of the consumer (within the budgetary space) allows to obtain the highest level of utility, that is, will be in the highest indifference curve.
To obtain the balance, the consumer must know their tastes and their budget constraint, which will depend on the level of income and the prices of the goods, so we can graphically represent it as the point of tangency between the budget constraint and the curve of indifference.
Analytically, the balance of the consumer is obtained by matching the slope of the balance line (budget constraint) to the slope of the indifference curve, that is, the “Equal Weighted Margin Utilities Law” is complied with.
Example of consumer balance
Let’s look at an example to calculate the equilibrium point of a consumer, knowing that the Price of good X is 10, that of good Y 5 and that it has an income of 900. Its utility function is: U (X, Y) = 5 X
- We look for the relationship between both goods, for this we use the “Law of Equality of Weighted Marginal Utilities” and we obtain that the utility of Y at that point is equal to that provided by 4 goods XY ^ 2:
- We replace this relationship in the budget constraint:
10 X + 5Y = 900
10 X + 5 (4X) = 900
30 X = 900
X = 30 Y = 120