Show diagrammatically the conditions for consumer's equilibrium, in Hicksian analysis of demand.
Answers
Answer:
In the Hickiian /Indifference Curve analysis, a consumer attains equilibrium when :
(i) The budget line is tangential to the Indifference Curve at a unique combination of two goods.
i.e., Slope of Indifference Curve = Slope of Budget Line or MRSxy = (-) Px/Py.
(ii) Indifference Curve is strictly convex to the origin at the point of tangency. i,e., MRSxy must be diminishing.
Explanation:
In the diagram, MN is the budget line, IC1, IC2 and IC3 are indifference Curves. A consumer can't get any Combination on IC3 as it away from price Iine MN. The consumer will be in equilibrium at point 'P' because at this point budget line MN is tangent to the Indifference curve. IC2 and A point 'P' slope of IC2=Slope of Budget line.
Answer:
In the Hickiian /Indifference Curve analysis, a consumer attains equilibrium when :
(i) The budget line is tangential to the Indifference Curve at a unique combination of two goods.
i.e., Slope of Indifference Curve = Slope of Budget Line or MRSxy = (-) Px/Py.
(ii) Indifference Curve is strictly convex to the origin at the point of tangency. i,e., MRSxy must be diminishing.
Explanation:
In the diagram, MN is the budget line, IC1, IC2 and IC3 are indifference Curves. A consumer can't get any Combination on IC3 as it away from price Iine MN. The consumer will be in equilibrium at point 'P' because at this point budget line MN is tangent to the Indifference curve. IC2 and A point 'P' slope of IC2=Slope of Budget line.