Question

explain the condition of consumer's equilibrium under indifference curve approach. ​

Answer 1

Conditions of Consumer's equilibrium.

1) MRS xy = $\frac{Px}{Py}$

Slope of IC = Slope of Price line .

Let's assume that

MRS xy = 2:1 , indicating that consumer is willing to sacrifice 2 units of good Y for 1 unit of good X .

Let $\frac{Px}{Py}$ = 2:1 , indicating that good X is 2 times the price of good Y .

Thus, MRS xy = $\frac{Px}{Py}$

2) IC is convex to the origin.

At the point of equilibrium IC must be convex to the origin. This is because marginal utility derived from every commodity must decline as we consume more of it if the law does not hold good the consumer can never reach the point of stable equilibrium