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In the case consumers equilibrium to be explained through an ordinal approach, when there are two commodities with their prices given and with limited income of the consumer, the following information is required:  a) Price line / budget line b) Indifference map c) Point of tangency between IC and budget line d) Equality of the slopes of IC and budget line  Arrange the information required in the correct sequence and choose the right option from those below 

In the case consumers equilibrium to be explained through an ordinal approach, when there are two commodities with their prices given and with limited income of the consumer, the following information is required:  a) Price line / budget line b) Indifference map c) Point of tangency between IC and budget line d) Equality of the slopes of IC and budget line  Arrange the information required in the correct sequence and choose the right option from those below  Correct Answer b) → a) → d) → c)

In the case consumers equilibrium to be explained through an ordinal approach, when there are two commodities with their prices given and with limited income of the consumer, the following information is required in the correct sequence:

1. Indifference Map:

  • J.R Hicks used the concept of the Indifference curve to analyze consumer behaviour. A consumer-facing choice between a large number of bundles of two goods tries to maximise his satisfaction by choosing a combination which gives him maximum utility.
  • An indifference schedule is a table which represents various combinations of two goods, which yield equal satisfaction to consumer. 
  • The graphical presentation of the Indifference schedule is known as the Indifference curve. 
  • A diagram showing different indifference curves corresponding to different indifference schedules of the consumer is an indifference map. In other words, a set or family of indifference curves is an indifference map. 

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2. Price line/budget line:

  • The budget line is a graphical delineation of all feasible combinations of two commodities that can be bought with provided income and cost so that the price of each of these combinations is equivalent to the monetary earnings of the customer.
  • In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.
  • Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices.

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3. Equality of the slopes of IC and budget line:

  • Note that the equilibrium quantities are those for which the slope of the indifference curve equals the slope of the budget line---that is, where the marginal rate of substitution equals the price ratio.
  • Now suppose that the level of the individual's income increases without any change in prices. More of both commodities can now be consumed and the price ratio does not change, so the budget line shifts outward with the new budget line being parallel to the original one.
  • The level of utility increases from  U0  to  U1  and the individual's consumption of the two goods increases to  X1  and  Y1 .
  • At this point we must keep in mind that the indifference map below Figure assumes that both X and Y are normal goods---that is, that indifference curve  U1  is tangent to the new higher budget line at a point to the right of output level  X0. 
  • In the case where X is an inferior good, this tangency would be to the left of output level  X0  and the quantity demanded of commodity X would decline as a result of the increase in income.

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Therefore, the correct sequence is b) → a) → d) → c).

Related Questions

In the case consumers equilibrium to be explained through an ordinal approach, when there are two commodities with their prices given and with limited income of the consumer, the following information is required:
I. Price line/budget line
II. Indifference map
III. Point of tangency between IC and budget line
IV. Equality of the slopes of IC and budget line
Arrange the information required in the correct sequence and choose the right option from those below
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