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State the conditions of consumer's equilibrium in the Indifference Curve Analysis and explain the rationale behind these conditions

Answer» <html><body><p></p>Solution :<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 only two goods the consumes are X and Y. The 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> of equilibrium are: <br/> (1) `MRS_(XY) = (P_(X))/(P_(Y))` <br/> (2) MRS falls as more of X is consumed in place of Y. <br/> Rationale behind these conditions: <br/> (1) <a href="https://interviewquestions.tuteehub.com/tag/suppose-656311" style="font-weight:bold;" target="_blank" title="Click to know more about SUPPOSE">SUPPOSE</a> `MRS_(XY) gt (P_(X))/(P_(Y))` it means that to obtain one more unit of X, the consumer is willing to sacrifice more units of Y as compared to what is required in the market. It induces the consumer to buy more of X. As a <a href="https://interviewquestions.tuteehub.com/tag/result-1187343" style="font-weight:bold;" target="_blank" title="Click to know more about RESULT">RESULT</a>, MRS falls and continue to fall till it become equal to the <a href="https://interviewquestions.tuteehub.com/tag/ratio-13379" style="font-weight:bold;" target="_blank" title="Click to know more about RATIO">RATIO</a> of prices and the equilibrium is established. <br/> (Explanation based on `MRS lt P_(X)//P_(Y)` is also correct) <br/> (2) Unless MRS falls as consumer consumes more of X, the consumer will not reach equilibrium again.</body></html>


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