Q.Explain how a rational consumer attains equilibrium under the Indifference Curve approach.

Equilibrium is reached where the budget line is tangent to the highest attainable indifference curve.

A rational consumer wants to reach the highest possible level of satisfaction that his given income allows. Since higher indifference curves represent higher satisfaction, and the budget line marks the boundary of what he can afford, he will choose the point on (or within) his budget line that lies on the HIGHEST indifference curve he can reach.

Graphically, this happens exactly where the budget line is tangent to an indifference curve — any point where the budget line merely CROSSES an indifference curve (rather than touching it at a single tangent point) lies on a LOWER curve than the consumer could reach by sliding along the budget line to the tangency point instead.

At the tangency point, the SLOPE of the indifference curve (which is $MRS_{xy}$) exactly equals the SLOPE of the budget line (the price ratio $\dfrac{P_x}{P_y}$):

$MRS_{xy} = \dfrac{P_x}{P_y}$ …

Stating only the tangency condition (MRSxy = Px/Py) while forgetting the accompanying convexity requirement is an incomplete answer — without convexity at the tangency point, that point could a …