Explain the conditions of consumer ' s equilibrium under Idifference C

1.	Explain the conditions of consumer ' s equilibrium under Idifference Curve analysis.
Answer» Solution :There are two CONDITIONS : (i) MRS = Ratio of prices (ii) MRS CONTINUOUSLY falls Explanation : (i) LET the two goods be X and Y.Thefirst condition for consumer's EQUILIBRIUM is that MRS`=P_(X)//P_(Y)`. Now suppose MRS is greater than`Px//Py`.It means that the consumer is willing to pay more for Xthan the price PREVAILING in the market . As a result , the consumer buysmore of X.This leads to fall in MRS . MRS continues to fall till it becomes equal to the ratio of prices and the equilibrium is established.(Or , alternatively in trems of when `MRSltPx//Py)` (ii)Unless MRS continuously falls , the equilibrium cannot be established.

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