Explain the condition of consumer is equillibrum with the help of indifference curve
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According to indifference curve analysis consumer is in equilibrium at a point where slope of indifference curve = slope of budget line or price line.
The conditions of equilibrium are:
1) MRSxy = Px / Py
If MRSxy > Px / Py it means consumer is willing to pay more for X then price prevailing in market.
If MRSxy <Px / Py it means consumer is willing to pay less for X then price prevailing in market.
2) MRS continuously falls: It states that indifference curve must be convex to the origin at the point of equilibrium.
The conditions of equilibrium are:
1) MRSxy = Px / Py
If MRSxy > Px / Py it means consumer is willing to pay more for X then price prevailing in market.
If MRSxy <Px / Py it means consumer is willing to pay less for X then price prevailing in market.
2) MRS continuously falls: It states that indifference curve must be convex to the origin at the point of equilibrium.
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