Question

State the condition of consumer's equilibrium in terms of indifference curve approach.

Answer 1

Indifference curve approach explains consumer's equilibrium with the use of consumer's indifference map and the budget line. Two conditions need to be fulfilled for the consumer to be in equilibrium:

1. MRSxy = `P_x/P_y`. This a necessary but not sufficient condition for equilibrium.
2. The indifference curve should be convex to the origin.