6. PROPERTIES OF IC
5. Indifference curve touches neither X-axis nor Y-
axis.
X
12
10 A(0, 10)
6. Indifference curve
8
need not to be 6
parallel to each 4
IC1
other . 2
Y
X
0
1 2 3 4 5
7.
8. BUDGET CONSTRAINTS
• Budget Constraints limits an individual’s ability
to consume in light of the prices they must
pay for various goods and services.
• Budget Line or Price Line: Show all possible
combination of two goods that the consumer
can buy if he spends the whole of his given
sum of money at his purchases at the given
prices.
9. BUDGET LINE
Com Apples Oranges Total
binat (@ Rs. 6 @ Rs. 2 budget
ion per unit) Per unit (Rs.)=6xA
+2xO
A 0 12 24 Y
B 1 9 24
C 2 6 24
D 3 3 24 X
E 4 0 24 Budget line corresponding to budget of
Rs. 24
10.
11. CONDITIONS OF CONSUMER EQUILIBRIUM
Condition-1:
Budget Line should be Tangent to the
Indifference Curve.
12 A
10
8
Y
C
6 IC4
4 IC3
(Attainable) IC2
2 IC1
B
0
1 2 3 4 5 6
12. CONDITIONS OF
CONSUMER EQUILIBRIUM
Condition-2: Indifference Curve
must be convex to the origin.
16 Combination E can not be equilibrium point
Because MRS will be increasing at E whereas it
14 should be diminishing at the equilibrium point.
A
12
10
8 E
IC1
6
4
Y
2 Budget Line
0 B
1 2 3 4 5X
13. SHIFT IN THE BUDGET LINE
If budget (Income) of the consumer increases to , then
budget line will shift outward to L2
181
6
14
12
If budget (Income) of the consumer reduces to ,
10
then budget line will shift inward to L3
8 L2
L1
6
4
Y
2 L3
0
X
1 2 3 4 5 6