consumer equilibrium

Imagine fiddling with your shopping cart, swapping a bit of this for a bit of that, until you finally think: there is nothing I can change that would make me happier with the money I have. That settled, satisfied state is consumer equilibrium. It is the point at which a consumer, given fixed income and prices, has chosen the bundle that gives the most satisfaction and has no reason to rearrange it.

Economists describe this best point in two equivalent ways. In the utility-and-numbers approach, equilibrium is where the marginal utility per dollar is equal across all goods, the equimarginal condition, so the last dollar buys the same extra satisfaction everywhere. In the curves approach, equilibrium is where the budget line just touches the highest reachable indifference curve, the tangency point, which is exactly where your marginal rate of substitution equals the price ratio. Both descriptions pin down the same bundle: the affordable one you most prefer.

Consumer equilibrium is the micro-foundation of demand. Hold preferences and income fixed and lower a price; the equilibrium bundle shifts, and tracing how the chosen quantity of a good changes as its price changes is precisely how an individual demand curve is born. The word equilibrium here means personal balance, a single shopper at rest, not the market-wide balance of supply and demand, which is a different idea with the same family name.