Economy, asked by kreetikejriwal, 2 months ago

a consumer consumes only two goods. why is the consumer said to be in equilibrium when he buys only that combination of the two goods which lies at that point on the indifference curve where the budget line is tangent to the indifference curve ? explain. use diagram.

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Answered by Nikitaydv9999

Answer:

Explanation:Let the two goods be X and Y as shown in the diagram. The tangency is at point E where slope of indifference curve = slope of budget line or MRS xy =Px/py The equilibrium purchase is OX of X and OY of Y on the indifference curve I2 level higher than I2 because his income does not permit him to move above the budget line AB. The consumer will not like to purchase any other bundle on the budget line AB. For example the bundle of C and D because they all lie on the lower indifference curve and give him lower satisfaction. Therefore the equilibrium choice is only of the tangency point E.

for diagram :

Read more on Sarthaks.com - https://www.sarthaks.com/494116/consumer-equilibrium-when-buys-only-that-combination-goods-that-shown-the-point-tangency

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a consumer consumes only two goods. why is the consumer said to be in equilibrium when he buys only that combination of the two goods which lies at that point on the indifference curve where the budget line is tangent to the indifference curve ? explain. use diagram.​

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a consumer consumes only two goods. why is the consumer said to be in equilibrium when he buys only that combination of the two goods which lies at that point on the indifference curve where the budget line is tangent to the indifference curve ? explain. use diagram.