The document discusses budget constraints and consumer equilibrium. It explains that a budget line shows all combinations of two goods a consumer can buy given their budget and the goods' prices. A consumer will choose the combination on the budget line that maximizes their satisfaction. This optimal combination must be located on the budget line and give the consumer their most preferred basket of goods. For a consumer to be in equilibrium, their highest indifference curve must be tangent to their budget line. Indifference curve analysis is useful for understanding consumer behavior and concepts like consumer surplus.

1. Budget Line and Consumer's Equilibrium
Dr. Dhiresh Kulshrestha
Associate Professor (Economics)

2. Budget line /Price Line/ Budget Constraints
(What is Attainable)
• Shows all possible combinations of two goods that the consumer can
buy if he spends the whole of his given sum of money on his purchases at
the given prices.
• Budget constraints limit an individual’s ability to consume in light of
the prices they must pay for various goods and services.

5. Consumer’s Equilibrium
• Consumers choose a combination of goods that will maximize the satisfaction
they can achieve, given the limited budget available to them.
• The maximizing combination must satisfy two conditions:
• It must be located on the budget line.
• Must give the consumer the most preferred combination of goods and
services.

6. Conditions of Consumer Equilibrium
• Condition-1:
• Budget Line should be Tangent to the Indifference Curve.

10. IC and Consumer’s Behaviour
• Indifference curve analysis is an improved technique of Analyzing
consumer’s behavior.
• Beside explaining consumer equilibrium and consumer surpluses,
indifference curves are useful in the field of Production, Distribution,
Exchange, Public Finance and International Trade.