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Implications of consumer equilibrium of conditions?
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Implications of consumer equilibrium of conditions?
Well as in the previous answer the two condition of consumer equilibrium was already given just want to add something ....that a given budget line must be tangent to the indifference curve or we can say that the the marginal rate of substitution between commodity X and commodity Y (MRSx,y) must be equal to the price ratio between the two goods PX/PY....second condition was that at the point of equilibrium, indifference curve must be convex to the origin i.e MRS is diminishing...now the point which i hve to add is that if the indifference curve is not convex to the origin at the point where the price line is tangential to the indifference curve, the consumer equilibrium will not be stable...this is the reason behind the second condition...
Community Answer
Implications of consumer equilibrium of conditions?
A) A given budget line must be tangent to the indifference curve ....b)The first condition is a necessary but not a sufficient condition . So we need a second one . Convexity of indifference curve to the origin is the second condition . Which implies that the MRS is falling at the point of equilibrium....Hope this helps u...
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Implications of consumer equilibrium of conditions?
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