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ECONOMICS

consumer equilibrium (indifference curve )

QuestionAnswer
what are the assumptions of IC analysis •income of the consumer is given and stays constant •the consumer spends his income on substitute goods •the consumer preference for two goods is well defined • monotonoic prefrence (more good more satisfaction ) •the consumer is rational
why is ic convex to the origin means that the slope of ic tends to decline as we move along the IC left to right . the slope of IC is called MRS (marginal rate of substitution)
why should MRS DECLINE as a consumer is consuming alot of good X that means that his desire for good X is going down,implying MRS for good X is falling . on the other hand as good Y is not consumed the intensity of good Y tends to rise , implying MRS for good Y is rising .
what are the features of IC (1)IC slopes downwards (2)IC is convex to the origin (3)higher IC shows higher levels of satisfaction (4)IC does not cross or intersect other IC
what is budget set and what are things that can lead to change the budget set A budget set is a set of all possible combinations of the set of two goods, which a consumer can afford at given prices and money income. •lead to chnage -price of good 1 -price of good 2 - consumer income
what is difference between budget set and budget line budget line -The price of different combinations of two goods is always equal to the consumer’s income. budget set -The price of different combinations of two goods is less than or equal to the consumer’s income.
why are price line drawn as a straight line because pirce of good y and x are taken as given in the market
Created by: Angelo1234?
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