Consumer Balance
An equilibrium condition is one in which consumers allocate all of their income to
consumption. The available money (a certain amount) is used to achieve the highest level of
satisfaction (utility maximization), or a certain level of satisfaction can be achieved with the
most minimal budget (cost minimization).
Reaction to Changes in the Price of Goods
The equilibrium reached may change as real income changes. If real income
increases, consumers can increase their level of satisfaction. Conversely, if real income
decreases, consumers are forced to reduce their level of satisfaction, adjusted to the
decreasing budget ability. One of the factors that can change real income is changes in the
price of goods.
1. Price-Consumption Curve
A change in the price of one good causes the price ratio to change. As a result, goods
whose prices fall or rise become relatively cheaper and more expensive than other
goods. Price Consumption Curve can be defined as the locus of consumer
equilibrium points at various price ratios as a result of changes in the price of a good,
where nominal income is fixed.
2. Demand Curve Decline
This demand curve is derived within the constraints of three assumptions, namely:
a) Consumers are in financial condition
b) Nominal income unchanged
c) Nominal prices of other goods remain unchanged
3. Individual Demand and Market Demand
Market demand is the sum of individual demand in the market.
Reaction to Changes in Nominal Income
One of the other factors that can change the consumer equilibrium is the change in
nominal income. Since the price ratio does not change, the budget line shifts parallel to the
previous budget line curve.
1. Income-Consumption Curve
The Income Consumption Curve can be defined as the location of consumer
equilibrium points at various levels of nominal income, where the nominal price of
goods does not change. The slope of the ICC is positive, because generally
