Explain the conditions of consumer ' s equilibrium under Idifference Curve analysis.

Explanation

There are two conditions :
(i) MRS = Ratio of prices
(ii) MRS continuously falls
Explanation :
(i) Let the two goods be X and Y. The first condition for consumer's equilibrium is that MRS `=P_(X)//P_(Y)`. Now suppose MRS is greater than `Px//Py`. It means that the consumer is willing to pay more for X than the price prevailing in the market . As a result , the consumer buys more of X. This leads to fall in MRS . MRS continues to fall till it becomes equal to the ratio of prices and the equilibrium is established. (Or , alternatively in trems of when `MRSltPx//Py)`
(ii) Unless MRS continuously falls , the equilibrium cannot be established.