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Theory of consumer behaviour — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsTheory of consumer behaviour6 Marks
Question
Explain the conditions of consumer’s equilibrium using indifference curve analysis.
✓

Answer

Given that two goods are X and Y, the two conditions are:
  1. $\text{MRS}=\frac{\text{Px}}{\text{Py}}.$
  2. MRS declines as more of a commodity X is consumed.
Explanation:
  1. Suppose $\text{MRS}>\frac{\text{Px}}{\text{Py}}$ It means that consumer is willing to pay more for an extra unit of X as compared to what market price is, The consumer consumes more and more of good X and less of good Y till MRS falls enough to be equal to the ratio finances and the consumer is in equilibrium.
  2. Unless MRS declines continuously as more and more of good X is consumed, it will not be equal to $\frac{\text{Px}}{\text{Py}}$ and consumer will not be able to reach the equilibrium.

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