Question

A consumer consumes two goods X and Y. What will happen if `(MU_X)/P_X` is greater than `(MU_Y)/P_Y`?

Answer 1

The consumer gets more marginal utility per rupee from X than from Y, so they will buy more X and less Y. This lowers MU of X and raises MU of Y until equilibrium is restored:

\[ \frac{\mathrm{MU}_X}{\mathrm{P}_X}=\frac{\mathrm{MU}_Y}{\mathrm{P}_Y} \]