A consumer consumes only two goods A and B and is in equilibrium. Show that when price of good B falls, demand for B rises. Answer this question with the help of utility analysis
The consumer reaches equilibrium only if the following condition is satisfied
Give that the utility received from each additional units of money spent on both the goods should be equal. The marginal utility of the amount spent on good A is equal to the marginal utility of the amount spent on good B and also equal to the marginal utility of money.
if the priceof good B falls in relation to good A, the consumerwillbuymoreof good B.
The consumption of good B will tend to increase till the equality is established between the marginal utilities of both the good become equal to the marginal utility of money.