Answer to Question #298981 in Microeconomics for Pooja

Question

 Explain consumer’s equilibrium condition with help of indifference curve approach. How will 

a change in consumer’s income affect his equilibrium?

Answer 1

The amount of items a consumer may buy in the market given his or her current level of income is known as the consumer's equilibrium.

There are two conditions that must be met for consumers to be in a state of equilibrium:

1) The budget line must be tangent to the indifference curve, or the marginal rate of substitution of good X for good Y (MRS _xy) must equal the price ratio. MRS _{x y} = P _x /P_y is an example of this.

2) At the point of tangency, the indifference curve must be convex to the origin.

When a consumer's income rises, his budget line rises in tandem, and when his income falls, the budget line falls. A new equilibrium is established as the consumer's income changes, and the consumer travels from one equilibrium point to another.