Q13 of 30 Page 1

Explain the conditions of consumer’s equilibrium using indifference curve analysis.

An indifference curve is a graph showing a combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

consumer’s equilibrium refers to the amount of goods and services which the consumer buy in the market provided his income and given prices of goods in the market.


Conditions:


1. marginal rate of satisfaction of good X for good Y (MRSxy) must be equal to the price ratio of the two goods. i.e.MRSxy = Px / Py


2.Indifference curve must face the origin


More from this chapter

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11

A producer supplies 80 units of a good at a price of Rs 10 per unit. Price elasticity of supply is 4. How much will he supply at Rs 9 per unit?

 12

Assuming that no resource is equally efficient in production of all goods, name the curve which shows production potential of the economy. Explain, giving reasons, its properties.

 14

Explain the distinction between “change in quantity supplied’ and “change in supply”. Use diagram.

(Diagram SKIPPED)


 15

Explain the implications of the following in a perfectly competitive market:

(a)Large number of buyers


(b)Freedom of entry and exit to firms


OR


Explain the implications of the following in an oligopoly market:


(a)Inter-dependence between firms


(b)Non-price competition