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Explain the conditions of consumer ' s equilibrium under Idifference Curve analysis.

Answer» <html><body><p></p>Solution :There are two <a href="https://interviewquestions.tuteehub.com/tag/conditions-424384" style="font-weight:bold;" target="_blank" title="Click to know more about CONDITIONS">CONDITIONS</a> :<br/>(i) MRS = Ratio of prices<br/>(ii) MRS <a href="https://interviewquestions.tuteehub.com/tag/continuously-7269309" style="font-weight:bold;" target="_blank" title="Click to know more about CONTINUOUSLY">CONTINUOUSLY</a> falls<br/>Explanation :<br/>(i) <a href="https://interviewquestions.tuteehub.com/tag/let-11597" style="font-weight:bold;" target="_blank" title="Click to know more about LET">LET</a> the two goods be X and Y.Thefirst condition for consumer's <a href="https://interviewquestions.tuteehub.com/tag/equilibrium-974342" style="font-weight:bold;" target="_blank" title="Click to know more about EQUILIBRIUM">EQUILIBRIUM</a> 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 <a href="https://interviewquestions.tuteehub.com/tag/prevailing-2950879" style="font-weight:bold;" target="_blank" title="Click to know more about PREVAILING">PREVAILING</a> 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)`<br/>(ii)Unless MRS continuously falls , the equilibrium cannot be established.</body></html>


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