Explain the conditions of consumer's equilibrium with the help of indifference curve approach .
Dear student,
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.
Regards
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.
Regards