Consumer S Equilibrium Indifference Curve Analysis вђ Tutor S Tips 1. price or budget line should be tangent to an indifference curve: in the words of watson, “when the consumer is in equilibrium, his highest attainable indifference curve is tangent to price line.”. the price line tangent to an indifference curve. in fig, ab is the budget or price line, and ic 1, ic 2 and ic 3 are indifference curves. The income is shown by budget line ab and e is the equilibrium point where the budget line is tangent to an indifference curve. when the income of consumer increases, the equilibrium point and budget line shifts to the right i.e. e 1 on the budget line cd. similarly, with a fall in the income, the consumer’s equilibrium and price or budget.
Consumer S Equilibrium Indifference Curve Analysis Tutor S Tips The consumer equilibrium through indifference curve analysis is based on the ordinal concept of utility. here, the indifference curve analysis measures where. 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. Although only three indifference curves are shown in figure 7.11, in principle an infinite number could be drawn. the collection of indifference curves for a consumer constitutes a kind of map illustrating a consumer’s preferences. different consumers will have different maps. In fig. 2.12, ic1, ic2 and ic3 are the three indifference curves and ab is the budget line. with the constraint of budget line, the highest indifference curve, which a consumer can reach, is ic2. the budget line is tangent to indifference curve ic2 at point ‘e’. this is the point of consumer equilibrium, where the consumer purchases om.
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