Show Diagrammatically Consumer S Equilibrium Using Indifference Curve 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 that as compared to the market. 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.
Consumer S Equilibrium Indifference Curve Analysis вђ Tutor S Ti A consumer always tries to remain at the highest possible indifference curve, subject to his budget constraint. 1. equilibrium condition: mrsxy (slope of indifference curve) = ratio of prices or px py (slope of budget line). The consumer equilibrium through indifference curve analysis is based on the ordinal concept of utility. here, the indifference curve analysis measures where. 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. Slope of indifference curve = slope of budget or price line or m rsxy = p x p y. also, at point e, i c2 is convex to the origin. accordingly, equilibrium is stable. in a state of equilibrium, the consumer is buying ol amount of good y and om amount of good x. it is here that he is maximising his satisfaction.
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