In this essay we will discuss about the effects of changes in income and price on consumer’s equilibrium. A consumer is in equilibrium when he maximizes his satisfaction subject to a limited money income and given market prices of goods and services. Fig. 3.11 illustrates the consumer's equilibrium. The budget line is AB and the indifference curves I, II, III [...]
The knowledge of the concept of budget line is essential for understanding the theory of consumer's equilibrium. A higher indifference curve shows a higher level of satisfaction than a lower one. Therefore, a consumer in his attempt to maximise his satisfaction will try to reach the highest possible indifference curve. But in his pursuit of buying more and more goods [...]
In this article we will discuss about the concept of consumer’s equilibrium, explained with the help of suitable diagrams and graphs. A consumer is said to be in equilibrium when he feels that he "cannot change his condition either by earning more or by spending more or by changing the quantities of thing he buys". A rational consumer will purchase [...]