Why should the budget line be tangent to 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.

When the price line is tangent to indifference curve the consumer is said to be in equilibrium?

In this case, the point where the price line is tangent to the indifference curve represents the minimum cost that the consumer will have to incur in order to obtain a certain level of utility given by the indifference curve.

Why the consumer is in equilibrium only when budget line is tangent to the IC justify your answer with valid reasons?

The consumer will not like to purchase any other bundle on the budget line AB. For example the bundle of C and D because they all lie on the lower indifference curve and give him lower satisfaction. Therefore the equilibrium choice is only of the tangency point E.

Why does a higher indifference curve represents higher level of satisfaction?

Higher indifference curve represents a higher level of satisfaction because higher IC means a bundle consisting more of both the goods or same quantity of one good n more quantity of the other good .

How can a consumer benefit from the indifference curve analysis?

Some of the advantages are: 1. It Dispenses with Cardinal Measurement of Utility 2. It Studies Combinations of Two Goods Instead of One Good 3. It Provides a Better Classification of Goods into Substitutes and Complements and Others.

When the price line is tangent to indifference curve the consumer is said to be in equilibrium True False?

A consumer is in equilibrium where indifference curve equals budget line? Answer: False: Consumer will be in equilibrium where IC is tangent to the budget line. Question 11. All points on the budget line give equal satisfaction to the consumer.

Are consumer reaches the point of equilibrium when?

A consumer attains equilibrium at such level where marginal utility derived from the consumption of a commodity is equal to its one unit price. If the marginal utility of a product is higher than its price, a consumer will consume more of it until marginal utility falls and reaches the price level.

How does the budget line and consumer equilibrium on the indifference map moves if the consumer income changes?

As shown in Fig. 3.12, when a consumer’s income increases, his budget line shifts parallel and upward and when his income decreases the budget line shifts downward. As the income changes, a new equilibrium is established and the consumer moves from one equilibrium point to another.

What do you understand by consumer equilibrium show consumer equilibrium with the help of 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. So, a consumer always tries to remain at the highest possible indifference curve, subject to his budget constraint.

Which indifference curve gives the highest level of satisfaction?

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.

What does higher indifference curve represent?

Higher indifference curve denotes a higher level of satisfaction. Higher indifference curve represents large bundle of goods, which means more utility because of monotonic preference.

Which indifference curve represents the highest level of satisfaction?

Higher indifference curve
Higher indifference curve represents higher level of satisfaction. In other words, any combination of goods which lie on a higher indifference curve represents higher level of satisfaction as consumer is able to buy more of goods on a higher IC.