Question

explain with appropriate diagram the consumer equilibrium ​

Answer 1

Answer :

Consumer's Equilibrium :

Consumer's Equilibrium is Optimal Choice of the Consumer. It can be defined as the Position of Maximum satisfaction.

According to Indifference Curve Approach, a Consumer attains Equilibrium at the point where budget line is tangent to Indifference Curve or MRS equals price ratio or Slope of Indifference Curve is equal to Slope of Budget line.

$\therefore \: Price \: Ratio \: = ( \dfrac{ - p_{1} }{ p_{2} } )$

Look At the Diagram Attached ;

There, BL is the budget line and $IC_{1} \: IC_{2} \: etc$ are different Indifferent Curves. At the point E, the slope of the budget line and the slope of $IC_{2}$ becomes Equal.

$\bigg[ \dfrac{∆x_{2}}{∆x_{1}} \bigg] = MRS_{ x_{1} x_{2} = \frac{ - p_{1} }{ p_{2}} }$

At point E, the Consumer is at Equilibrium. As he chooses the bundle $(x_{1} \:* , x_{2}*)$ he gets maximum Satisfaction.