A consumer consumes only two goods X and Y both priced at Rs 3 per unit. If the consumer choose a combination of these two goods with Marginal Rate of Substitution equal to 3, is the consumer in equilibrium ? Give reason. What will a rational consumer do in this situation ? Explain ltrbgt OR
State and explain three properties of indifference curves.

Explanation

Given `P_(x) = 3, P_(y) = 3 " and " MRS = 3`. A consumer is said to be in equilibrium when `MRS = (P_(x))/(P_(y))`
Substituting values we find that:
`3 gt (3)/(3)`
i.e., `MRS gt (P_(x))/(P_(y))`
Therefore, consumer is not in equilibrium.
`MRS gt (P_(x))/(P_(y))` means that consumer is willing to pay more for one more unit of `x` as compared to what market demands.
`-` The consumer will buy more units of `x`
`-` As a result, MRS will fall due to the Law of Diminishing Marginal Utility
`-` This will continue till `MRS = (P_(x))/(P_(y))` and consumer is in equilibrium.
OR
1. Indifference curves are always Convex to the origin: An indifference curve is convex to the origin because of diminishing MRS. MRS declines continuously because of the law of diminishing marginal utility.
2. Indifference curve slope downwards: It happens because if the consumer decides to have more units of one good, he will have to reduce the number of units of another good, so that total satisfaction remain the same.
3. `Higher Indifference curves represent higher levels of satisfaction: Higher indifference curve represents large bundle of goods, which means more satisfaction because of monotonic preference.