Consumer Equilibrium Under Indifference Analysis:

Under the indifference curve approach, the consumer equilibrium is achieved when the consumer reaches the highest possible indifference curve given his budget constraints represented by his budget line. The consumer equilibrium position is illustrated in Figure .

In Figure, the consumer can afford to buy any of the combination of apple and beer described by points S, T, and U given his budget line RV. However, he prefers the combination on point T i.e a1 of apple and b1 quantity of beer because it gives him greater utility (IC2) then any of combination on points S and U (IC1). He should

have preferred x on IC3 but this is beyond the limit of his budget. it follows that:

A consumer maximizes his satisfaction at the point where the budget line is just tangent to an indifference curve

In Figure, point T is called consumer equilibrium point or optimum consumption point. At that point, the slope of the indifference curve is equal to the slope of the budget line.

Equation is identical to equation (4.3) obtained for consumer equilibrium point under the marginal utility approach.