Explain Consumer Equilibrium with the help of IC Curve?
Meaning of Consumer’s equilibrium
Consumer’s equilibrium is that point in which consumer consumes the combination of two goods by his limited income. He gets maximum satisfaction from these goods and never changes this situation. If he will change this point, his level of satisfaction will decrease.
Indifference curve shows the combination of two goods which a consumer is consuming. For increasing one good’s one unit, he has to leave some quantities of other second goods. The sacrificing of second goods quantity will decreasing because, law of diminishing marginal rate of substitute will apply on it.
rnIncome apple ( 0.50 per unit ) orange ( Rs. 1 per unit ) nFour rupees 8 0nFour rupees 6 1nFour rupees 4 2nFour rupees 2 3nFour rupees 0 4n
Price line must be the tangent to indifference curve
It is not necessary that price line cut indifference curve, but it is important that price line must be tangent to indifference curve. Price line when touches indifference curve, then it means that Marginal rate of substitute of apple and orange will equal to the ratio of price of apple and orange .