Question

32. Explain conditions of consumer's equilibrium in Indifference Curve Analysis​

Answer 1

Explanation:

Consumers equilibrium is the amount of goods the consumer can buy in the market given his/her current level of income.

There are two conditions for consumers equilibrium:

1) The first is that the budget line should tangent to the indifference curve or marginal rate of substitution of good X for Good Y (MRS xy ) must be equal to the price ratio . i.e MRS x y = Pxl /Py

2) The indifference curve should be convex to the origin at the point of tangency.

Answer 2

Answer:

Thus the consumer’s equilibrium under the indifference curve theory must meet the following two conditions:

First: A given price line should be tangent to an indifference curve or marginal rate of satisfaction of good X for good Y (MRSxy) must be equal to the price ratio of the two goods. i.e.

MRSxy = Px / Py

Second: The second order condition is that indifference curve must be convex to the origin at the point of tangency.