Consumer’s Equilibrium through Indifference Curve. According to indifference curve approach, a consumer attains equilibrium under two conditions: (i) When marginal rate of substition is equal to ratio of prices of two goods i.e., MRSxy = Px/Py. Therefore at point of equilibrium, MRSxyshould be diminishing.
How does consumer attain equilibrium using IC and budget line?
The consumer is in equilibrium when he maximizes his utility, given his income and the market prices. A consumer is said to have attained equilibrium when he spends given income or budget in such a way as to yield optimum satisfaction, given the prices of two goods and the consumer’s preference.
How does a consumer reach at equilibrium through IC analysis explain with the help of a diagram?
Explain consumer’s equilibrium with the help of Indifference Curve Analysis. The point of maximum satisfaction is achieved by studying indifference map and budget line together. On an indifference map, higher indifference curve represents a higher level of satisfaction than any lower indifference curve.
How a consumer can achieve the equilibrium level?
Therefore, we can say that consumers equilibrium is achieved when the price line is tangential to the indifference curve. Or, when the marginal rate of substitution of the goods X and Y is equal to the ratio between the prices of the two goods.
What do you mean by consumer equilibrium?
What is the Definition of Consumer Equilibrium? Consumer equilibrium is a point at which a consumer’s derived utility from a commodity is at its maximum, given a fixed level of income and price of that commodity. A rational consumer would not deviate from this point.
How to calculate the consumer’s equilibrium through the indifference curve?
The consumer’s equilibrium in explained by combining the budget line and the indifference map. In the diagram 3.11, there are three indifference curves IC1, IC2 and IC3. The price line PT is tangent to the indifference curve IC2 at point C.
Is the consumer in equilibrium at Point C?
Summing up, the consumer is in equilibrium at point C where the budget line PT is tangent to the indifference IC2. The market basket OH of good X and OE of good Y yields the greatest satisfaction because it is on the highest attainable indifference curve. At point C:
When is a consumer in equilibrium with his budget?
A consumer will be in equilibrium when his budget line is tangential to the highest attainable indifference curve. In terms of Fig. 2.27, IC 1 crosses the budget line at points C and D. As IC 1 is a lower-order indifference curve, it must not represent highest satisfaction.
How can a consumer reach equilibrium or maximize his satisfaction?
Given budget constraints and preferences, we now intend to demonstrate how a consumer can maximize his satisfaction or reach equilibrium. A consumer will be in equilibrium when he gets maximum satisfaction from the consumption of various commodities.
