Consumer equilibrium in case of indifference …

the equilibrium is established. (ii) MRS continuously falls: The second condition for consumer’s equilibrium is that MRS must be diminishing at the point of equilibrium, i.e. the indifference curve must be convex to the origin at the point of equilibrium. Unless MRS continuously falls, the equilibrium cannot be established. Thus, both the conditions need to be fulfilled for a consumer to be in equilibrium.

Understanding Consumer’s Equilibrium by Indifference Curve Analysis! Consumer equilibrium refers to a situation, in which a consumer derives maximum satisfaction, with no intention to change it and subject to given prices and his given income. The point of maximum satisfaction is achieved by studying indifference map and budget line together. Microeconomics Image Courtesy : wikieducator.org/images/3/3f/San.jpg ADVERTISEMENTS: On an indifference map, higher indifference curve represents a higher level of satisfaction than any lower indifference curve. So, a consumer always tries to remain at the highest possible indifference curve, subject to his budget constraint. Conditions of Consumer’s Equilibrium: The consumer’s equilibrium under the indifference curve theory must meet the following two conditions: (i) MRSXY = Ratio of prices or PX/PY ADVERTISEMENTS: Let the two goods be X and Y. The first condition for consumer’s equilibrium is that MRSXY = PX/PY a. If MRSXY > PX/PY, it means that the consumer is willing to pay more for X than the price prevailing in the market. As a result, the consumer buys more of X. As a result, MRS falls till it becomes equal to the ratio of prices and the equilibrium is established. b. If MRSXY < PX/PY, it means that the consumer is willing to pay less for X than the price prevailing in the market. It induces the consumer to buys less of X and more of Y. As a result, MRS rises till it becomes equal to the ratio of prices and