Question

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.​

Answer 1

Answer:

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