Why the budget line is tangent to the indifference curve?

In graphical terms, the new budget constraint will now be tangent to a higher indifference curve, representing a higher level of utility. A reduction in income will cause the budget constraint to shift to the left, which will cause it to be tangent to a lower indifference curve, representing a reduced level of utility.

What are the conditions of consumer equilibrium under the indifference curve approach?

According to indifference curve approach, consumer’s equilibrium is the point at which the slope of indifference curve is equal to the slope of budget line. Py = Price of Commodity Y, (ii) At the point of equilibrium, indifference curve must be convex to the origin. It means that MRSxy declines when X is consumed more.

How does a consumer achieve equilibrium given an indifference curve and budget line?

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.

Why does the consumer get maximum satisfaction when the indifference curve is tangent to the budget line?

Budget line should be tangent to the indifference curve A budget line can be drawn on the basis of expenditure plan. Thus, the consumer will be in equilibrium (achieve maximum satisfaction at any given level of income) where the budget line is tangent to the indifference curve, i.e. at point E on IC2.

What are the condition of consumer equilibrium?

A consumer is in equilibrium when given his tastes, and price of the two goods, he spends a given money income on the purchase of two goods in such a way as to get the maximum satisfaction, According to Koulsayiannis, “The consumer is in equilibrium when he maximises his utility, given his income and the market prices. …

What are the two condition of consumer equilibrium under the indifference curve theory explain consumer equilibrium with the help of indifference curve approach?

The consumer’s equilibrium under the indifference curve theory must meet the following two conditions: (i) MRSXY = Ratio of prices or PX/PY: Let the two goods be X and Y. The first condition for consumer’s equilibrium is that. MRSXY = PX/PY.

What is the condition of equilibrium under ordinal approach?

The ordinal approach defines two conditions of consumer equilibrium: Necessary or First Order Condition and Supplementary or Second Order Condition. This means that the consumer is indifferent towards the consumption of two goods which are closely related to each other.

What are the condition of producer equilibrium?

Producer’s equilibrium refers to the state in which a producer earns his maximum profit or minimise its losses. According to MR-MC approach, the producer is at equilibrium,, when the Marginal Revenue (MR) is equal to the Marginal Cost (MC) and Marginal Cost curve must cut the Marginal Revenue curve from below.

What is the condition of consumer equilibrium in two commodity case?

A consumer is said to be in an equilibrium point for 2 commodities when the marginal utility of one rupee for each product is equal, and MU reduces when consumption of a product increases.