Question

A consumer consumes goods X and Y. Given below is his marginal utility schedule for goods X and Y. Suppose the price of X is ₹ 2 of Y is ₹ 1 and income is ₹ 12. State the law of equimarginal Utility and explain how the consumer will attain equilibrium.

Units	1	2	3	4	5	6
MUX	16	14	12	10	8	6
MUY	11	10	9	8	7	6

A consumer consumes goods X and Y. Given below is his marginal utility schedule for goods X and Y. Suppose the price of X is ₹ 2 of Y is ₹ 1 and income is ₹ 12. State the law of equimarginal Utility and explain how the consumer will attain equilibrium.

Answer 1

The utility maximising consumer will spend his money income on different goods in such a way that marginal utility of each good is proportional to its price.

Units	`bb((MU_X)/P_x)`	`bb((MU_y)/P_y)`
1	`16/2=8`	11
2	`14/2=7`	10
3	`12/2=6`	9
4	`10/2=5`	8
5	`08/2=4`	7
6	`06/2=3`	6

It is important to note that while the costs of the two commodities varied, the consumer will equate the marginal utilities of the goods in order to maximise his utility. He will compare the marginal utility of the last rupee spent on these two items, often known as the marginal utility of money expenditure. In other words, after he spends his allotted income on the two items, he will equate `(MU_x)/P_x` with `(MU_x)/P_x`. It is evident from the table that when the customer buys one unit of good X, `(MU_x)/P_x` equals eight units, and when he buys four units of good Y, it equals eight units. Thus, when a consumer purchases one unit of good X and four units of good Y, spending (Rs 2 × 4 + Rs 1 × 4) = Rs 12, he will be in equilibrium. Consequently, he is in the state of equilibrium where his utility is maximized.

Thus, the marginal utility of the last rupee spent on each of the two goods he purchases is the same, that is, 8 utils.