Consumer Equilibrium Under Indifference Curve Analysis

Consumer Equilibrium Under Indifference Curve Analysis Conditions of consumer’s equilibrium. consumer’s equilibrium can be achieved with the help of indifference curve theory only after meeting the following two conditions: 1. mrsxy = ratio of prices or = market rate of exchange (mre) suppose there are two goods, x and y. the first condition would be. if mrs {xy}>\frac {p x} {p y}, it means. The budget line is tangent to indifference curve ic2 at point ‘e’. this is the point of consumer equilibrium, where the consumer purchases om quantity of commodity ‘x’ and on quantity of commodity ‘y. all other points on the budget line to the left or right of point ‘e’ will lie on lower indifference curves and thus indicate a.

Consumer Equilibrium Under Indifference Curve Analysis Higher indifference curves represent a greater level of utility than lower ones. in figure 1, indifference curve ul can be thought of as a “low” level of utility, while um is a “medium” level of utility and uh is a “high” level of utility. all of the choices on indifference curve uh are preferred to all of the choices on. Ms. bain prefers all the combinations on indifference curve b to those on curve a, and she regards each of the combinations on indifference curve c as inferior to those on curves a and b. although only three indifference curves are shown in figure 7.11 “indifference curves”, in principle an infinite number could be drawn. the collection of. Thus the consumer’s equilibrium under the indifference curve theory must meet the following two conditions: first: a given price line should be tangent to an indifference curve or marginal rate of satisfaction of good x for good y (mrs xy) must be equal to the price ratio of the two goods. i.e. mrs xy = p x p y. Consumer equilibrium. the consumer is in equilibrium at point ‘e’ where the budget line touches the u 2 indifference curve. although the consumer is willing to go to the u 3 indifference curve, his limited income does not allow him to do so. at point e, the slope of the budget line (px py) equals the slope of the indifference curve.