Question

Explain the condition of equilibrium on consumer equilibrium indifference curve analysis

Answer 1

Basically,t here are two conditions.

1-MRSxy(the rate at which consumer is willing to substitute Good X for Good y,slope of IC)=px/py(The rate at which market allows consumer to substitute Good X for Good Y,slope of budget line)

2-IC must be convex at the point of equilibrium.

Answer 2

According to indifference curve approach, a consumer attains equilibrium under two conditions:

When marginal rate of substitution is equal to ratio of prices of two goods i.e., MRSxy = Px/Py.

MRSxy is continuously falling i.e., indifference curve should be convex to the origin.