Consumer’s Equilibrium Bundle of Goods

We know that an individual will chose a bundle of goods that provide him the maximum utility from all the available choices. Based on the income and prices of products the choices available to the individual constitute the budget set.

We can combine the indifference curve for the individual along with his budget constrain to identify the optimal (most preferred) consumption bundle for him.

The following diagram plots the consumer’s budget constraint along with his indifference curves.

The consumer will choose the bundle on the outermost indifference curve. Therefore, it is the one that just touch the budget constraint. This point represents the equilibrium bundle of goods. It is also called the consumer’s ordinary demand at the given prices and budget.