question_answer

Given the price of a good, how will a consumer decide as to how much quantity to buy of that good? Explain.

Or

What is Indifference Curve? State three properties of indifference curves.

Answer:

Consumer equilibrium: Consumer equilibrium is the situation through which a consumer decides how many units of the goods to consume.

It refers to the situation when consumer sets maximum satisfaction/utility from the goods it consumes.

Price retains constant, when MU of Goods is more than its price, then consumer will decide not to purchase that good. Also, when MU is less than its price, then also consumer will give up its consumptions.

A consumer will consume only when, MU is equal to price.

MUx = Px

In the diagram,

X-axis = Consumption

Y-axis = Price

E = Consumer Equilibrium

Or

Indifference Curve

A curve on a graph (the axis of which represent quantities of two commodities) linking those combinations of quantities which the consumer regards as of equal value.

IC - Indifference Curve.

X-axis = good x

Y-axis = Good y

Properties;

(i) Higher IC gives higher level of satisfaction.

(ii) Two Indifference Curves never intersect each other.

(iii) Indifference curves is convex to the origin.