Question

A consumer consumes only two goods X and Y. The marginal utilities of X and of Y is 3. Prices of X and Y are Rs 2 and Rs 1 respectively. Is consumer in equilibrium? What will be further reaction of the consumer?

Give reasons.

Answer 1

`(MU_x)/P_x=(Mu_y)/P_y`

As we know that

`(MU_x)/P_x=3/2=1.5`

`(MU_y)/P_y=3/1=3`

Here, 

`(MU_y)/P_y>(MU_x)/P_x`

Thus, if a consumer is not in equilibrium, then the consumer increases the consumption of Good Y and decreases that of Good X to reach the equilibrium.