Show diagrammatically the conditions for consumer ’s equilibrium, in Hicksian analysis of demand.

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Solution

In the Hicksian/ Indifference Curve analysis, a consumer attains equilibrium when

i)Budget line is tangential to the Indifference curve at a unique combination of two goods. i.e, Slope of Indifference Curve = Slope of Budget line or $M R S_{x y}$ = (-) Px /Py

ii) Indifference Curve is strictly convex to origin at the point of tangency i.e., $M R S_{x y}$ must be diminishing.

Explanation to the diagram.

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