Consumers equilibrium through indifference curve and budget line
Consumers equilibrium through indifference curve and budget line Consumer's Equilibrium: The consumer is said to be in equilibrium when he maximizes his total utility, given his income and market price of the goods he consumes. The ordinal utility approach specifies two important tools for the consumer's equilibrium mentioned below: 1. consumer's indifference map, 2. budget line. Two conditions must be fulfilled for the consumer's equilibrium: The first condition is that the marginal rate of substitution should be equal to the ratio of commodity prices. MRSxy = M U x M U y M U x M U y = P x P y This is necessary but not a sufficient condition for the consumer's equilibrium. The second condition is that the indifference curve should be convex to the origin and the necessary condition is fulfilled at the highest possible indifference curve. In the diagram, the consumer will be in equilibrium at the point Q where he will buy OM quantity of go...