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Economics notes Consumer equilibrium through indifference curve


Economics notes Consumer equilibrium through indifference curve

The indifference curve approach was given by Hicks and is based on the ordinal measure of utility i.e. denoting ranks to levels of satisfaction (like first, second, third etc).  Hicks assumed that the utility derived from the consumption of a commodity can’t be expressed numerically in terms of utils but in levels of satisfaction. He gave some important concepts to describe his indifference curve analysis which are:
BUNDLE may be defined as the combination of the amount of two goods.
BUDGET SET is the various sets of bundles or combinations of two goods which a consumer can purchase using his given income.
BUDGET LINE represents all those combinations of two goods which a consumer can purchase with his entire income. This is also called PRICE LINE.
The equation of the budget line is:
P1X1 + P2X2 = M
Where P1 stands for price of good 1
                  X1 stands for quantity of good 1
            P2 stands for price of good 2
                  X2 stands for quantity of good 2
                           M stands for income of the consumer
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