The document outlines a seminar presentation on consumer equilibrium under indifference curve analysis. It discusses key concepts like indifference curves, assumptions of consumer equilibrium, indifference maps, budget lines, and conditions for consumer equilibrium such as when the budget line is tangent to the highest indifference curve. It also examines the income effect through income consumption curves, providing examples of normal goods, inferior goods, and luxury goods.

1. SEMINAR Presentation
Consumer Equilibrium under Indifference Curve Analysis
BA Economics Programme
Muhammed Haneef T.P
Askar
Muhammed Younis Salim
SAFI Institute of Advanced Study, Vazhayoor

2. Consumer Equilibrium under Indifference Curve Analysis
I. Introduction to Indifference curve analysis
II. Assumptions to equilibrium of the consumer
III. Indifference Map and Budget Line of consumer
IV. Consumer’s Equilibrium or Maximization of Satisfaction
V. First and Second order condition for consumer equilibrium.
VI. Income Effect: Income consumption Curve
a) ICC of Normal Good
b) ICC of Luxury Goods
c) ICC of Inferior good
VII. Conclusion

3. Consumer Equilibrium under Indifference Curve Analysis
1. Introduction to Indifference curve analysis

4. Consumer Equilibrium under Indifference Curve Analysis
1. Introduction to Indifference curve analysis
• Ordinal means- Can be compare with each other- 1St , 2nd , 3rd etc.
• Ordinal Utility analysis - Utility can compare but can not be measure.
• Popularized by J.R. Hicks and R.G.D. Allen
• Used the tool named Indifference Curve
• Known as Indifference curve approach of utility analysis

5. Consumer Equilibrium under Indifference Curve Analysis
1. Introduction to Indifference curve analysis
Assumptions Indifference Curve Analysis
a) Consumer is rational or Rationality
b) Utility is ordinal
c) Consistence in choice
If A > B, then never become B > A
4. Consumer’s Preference is Transitive:
If A > B and B > C, then A > C
5. Diminishing Marginal Substitution of goods:
6. Dependent Utility
7. A Large bundle of goods preferred to small bundle

6. Consumer Equilibrium under Indifference Curve Analysis
II. Assumptions to explain equilibrium of the consumer

7. Consumer Equilibrium under Indifference Curve Analysis
II. Assumptions to equilibrium of the consumer
To Explain the consumers equilibrium the following assumption is there
1. The consumer has Indifference Map of good X and Good Y
2. The consumer have a fixed money income which are spend on X and Y
3. The Prices of good X –Px and good Y – Py are given
4. Good are homogenous

8. Consumer Equilibrium under Indifference Curve Analysis
III. Indifference Map and Budget Line of consumer

9. Consumer Equilibrium under Indifference Curve Analysis
III. Indifference Map and Budget Line of consumer
A graph showing a whole set of indifference curves is called an indifference map. An
indifference map, in other words, is comprised of a set of indifference curves. Each
successive curve further from the original curve indicates a higher level of total
satisfaction.

10. Consumer Equilibrium under Indifference Curve Analysis
III. Indifference Map and Budget Line of consumer
A budget line or price line represents the various combinations of two goods which can
be purchased with a given money income and assumed prices of goods".
Income (Y)= 60
Price of Biscuit (Px) = 6
Price of Coffee(Py) = 12
Combination Biscuit Coffee
A 10 0
B 8 1
C 6 2
D 4 3
E 2 4
F 0 5

11. Consumer Equilibrium under Indifference Curve Analysis
IV. Consumer’s Equilibrium or Maximization of Satisfaction

12. Consumer Equilibrium under Indifference Curve Analysis
IV. Consumer’s Equilibrium or Maximization of Satisfaction
"The term consumer’s equilibrium refers to the amount of goods and services
which the consumer may buy in the market given his income and given prices of
goods in the market, that give maximum satisfaction to consumer".
The aim of the consumer is to get maximum satisfaction from his money income.
Given the price line or budget line and the indifference map:

13. Consumer Equilibrium under Indifference Curve Analysis
IV. Consumer’s Equilibrium or Maximization of Satisfaction
"The term consumer’s equilibrium refers to the amount of goods and services which the
consumer may buy in the market given his income and given prices of goods in the market".
The aim of the consumer is to get maximum satisfaction from his money income. Given
the price line or budget line and the indifference map:

14. Consumer Equilibrium under Indifference Curve Analysis
IV. Consumer’s Equilibrium or Maximization of Satisfaction
"A consumer is said to be in equilibrium at a point where the price line is touching the
highest attainable indifference curve from below"

15. Consumer Equilibrium under Indifference Curve Analysis
IV. Consumer’s Equilibrium or Maximization of Satisfaction
"A consumer is said to be in equilibrium at a point where the price line is touching the
highest attainable indifference curve from below"

16. Consumer Equilibrium under Indifference Curve Analysis
IV. First order and Second order condition for consumer Equilibrium

17. Consumer Equilibrium under Indifference Curve Analysis
IV. First order and Second order condition for consumer Equilibrium
Thus the consumer’s equilibrium under the indifference curve theory must meet the following
two conditions:
First order condition : A given price line should be
tangent to an indifference curve or marginal rate of
satisfaction of good X for good Y (MRSxy) must be equal
to the price ratio of the two goods. i.e.
MRSxy = Px / Py
Slop of IC = Slop of Budget Line
Second order condition : The second order condition is
that indifference curve must be convex to the origin at
the point of tangency.

18. Consumer Equilibrium under Indifference Curve Analysis
IV. First order and Second order condition for consumer Equilibrium
First order condition : Necessary Condition
(1) Budget Line Should be Tangent to the Indifference Curve:
A given price line should be tangent to an indifference curve or marginal rate of satisfaction
of good X for good Y (MRSxy) must be equal to the price ratio of the two goods. i.e.
MRSxy = Px / Py
Slope of the Price Line to be Equal to the Slope of Indifference Curve:
Price of X / Price of Y = MRS of X for Y
Slop of Budget Line = Slop of IC

19. Consumer Equilibrium under Indifference Curve Analysis
IV. First order and Second order condition for consumer Equilibrium
Second order condition : Sufficient Condition
The second order condition is that indifference curve must be convex to the origin at the
point of tangency.
Indifference Curve Should be Convex to the Origin at the point of Tangency

20. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
a) ICC of Normal Good
b) ICC of Inferior good
c) Luxury good

21. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
The Income effect in economics can be defined as the change in consumption
resulting from a change in real income.
If the prices of goods, tastes and preferences of the consumer remains constant and
there a change in his income, it will directly affect consumer’s demand. This effect on the
purchase due to change in income is called the income effect.

22. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
The Income Consumption Curve show how income effect on the quantity consumed
of the good

23. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
If the prices of goods, tastes and preferences of the consumer remains constant and there a
change in his income, it will directly affect consumer’s demand. This effect on the purchase due
to change in income is called the income effect.

24. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
a) ICC of Normal Good

25. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
a) ICC of Inferior good
The good which is purchased less with the increase in income is called inferior good.
Rice is inferior
Wheat is
inferior

26. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
ICC - good X is
Inferior and good Y
is Normal
Good Y
ICC - good Y is
inferior and good X is
Normal
Good X

27. Consumer Equilibrium under Indifference Curve Analysis
V. Income Effect: Income consumption Curve
ICC - good X is
necessity and good Y
is Luxury
Good Y
ICC - good Y is
necessity and good X
is Luxury
Good X

28. Consumer Equilibrium under Indifference Curve Analysis
I. Introduction to Indifference curve analysis
II. Assumptions to equilibrium of the consumer
III. Indifference Map and Budget Line of consumer
IV. Consumer’s Equilibrium or Maximization of Satisfaction
V. First and Second order condition for consumer equilibrium.
VI. Income Effect: Income consumption Curve
a) ICC of Normal Good
b) ICC of Luxury Goods
c) ICC of Inferior good
VII. Conclusion

29. Consumer Equilibrium under Indifference Curve Analysis
Conclusion