CONSUMER'S EQUILIBRIUM (INDIFFERENCE CURVE ANALYSIS)

Indifference Set
Indifference set is a set of different combinations of two goods which offers the consumer the same level of satisfaction.
Indifference Curve
Indifference curve is a curve which shows different combinations offering the same level of satisfaction to the consumer. 
Properties Of Indifference Curve(IC) 
(1) IC Slopes Downward- IC slopes downward from left to right. It means that IC has a negative slope. It implies if the consumer decides to have more of one good, he must have less of the other. 
(2) IC is Convex to the Origin-It means that the slope of IC tends to decline, as we move along the IC from left to right.
(3) Higher IC shows Higher Level of Satisfaction- A set of ICs drawn in a graph is known as Indifference map.Each IC in the indifference map corresponds to different level of consumer's income. Higher IC indicates higher level of satisfaction.
(4) IC doesn't touch X-axis or Y-axis -This is because IC analysis considers the consumption of two goods. If IC touches Y-axis, it would mean that the consumption of Good-X is zero.Likewise, if IC touches X-axis it would mean that the consumption of Good-Y is zero.
(5) IC do not Touch or Intersect Each Other-
Slope Of IC
Slope of IC indicates Marginal Rate of Substitution(MRS). 
Marginal Rate of Substitution(MRS) 
MRS refers to the rate at which the consumer is willing to substitute one good for the other.
Why IC is Convex to the Origin? 
IC is convex to the origin because MRS tends to decline as we move along the curve, left to right. 
Why MRS Declines? 
As more and more unit of Good-X are consumed by the consumer, his intensity of desire for Good-X tends to decline. Implying that marginal utility of Good-X tends to fall. On other hand as more and more units of Good-Y are given up, his intensity of desire for Good-Y tends to rise. Accordingly, MRS tends to fall as we move down the IC. 
Budget Set
Budget set refers to a set of attainable combinations of two goods with given market price of the goods and income of the consumer.Budget set is defined in terms of the following equation
where, P1= Price of Good-1
Q1=Quantity of Good-1
P2=Price of Good-2
Q2=Quantity of Good-2
Y=Total budget
Budget Line or Price Line
Budget line is a line which shows different combinations of two goods which a consumer can attain, when he spends his entire income on these goods and the market price of the goods are given.Budget line is defined in terms of following equation
Where,P1=Price of Good-1
Q1=Quantity of Good-1
P2=Price of Good-2
Q2=Quantity of Good-2
Y=Total budget

Slope of Budget Line
Slope of budget line shows the rate at which market price allows the consumer to substitute Good-X for Good-Y. The slope of budget line is expressed as
Consumer's Equilibrium
Consumer's equilibrium is defined as a situation when the consumer maximises his satisfaction, spending his given income across different goods with the given prices. 
Assumptions Of IC Analysis Of Consumer's Equilibrium
(1) Money income of the consumer is given 
      Which is constant. 
(2) The two goods are substitute of each 
      other. 
(3) The consumer's scale of preference for
      the two goods doesn't change. 
(4) The consumer is driven by monotonic 
      preferences. 
(5) The consumer is rational. 
Monotonic Preference
It implies that higher consumption of a commodity leads to higher satisfaction. 
Consumer's Equilibrium Using IC Analysis
Consumer's equilibrium refers to optimum choice of the consumer. It is reached when he maximises his satisfaction. In case of IC analysis consumer gets equilibrium when two conditions are satisfied
(1) 
(2) It is convex at the point of equilibrium. 
From the above figure it is clear that
(1) AB is a budget line. 
(2)There are 3 ICs namely IC1, IC2 and IC3. 
(3) IC2 touches budget line AB at Point E where he gets the equilibrium because at that point IC2 is convex to the point of equilibrium. 
(4) IC1 also intersects budget line AB at point F and point G but at the point of intersection it is not convex. 
(5) Equilibrium can only be obtained from IC2 neither from IC1 and IC3, 

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