Question

A consumer consumes only two goods X and Y. Her money income is ₹ 24 and the prices of Goods X and Y are ₹ 4 and ₹ 2 respectively. Answer the following questions:

1. Can the consumer afford a bundle 4X and 5Y? Explain.
2. What will be the MRS_XY when consumer is in equilibrium? Explain.

Answer 1

Given: Income = ₹ 24, \(P_X=₹4\), \(P_Y=₹2\)

Total expenditure on 4X and 5Y:

\[ =(4\times4)+(5\times2) \]

\[ =16+10=₹26 \]

No, the consumer cannot afford this bundle because the total expenditure of ₹ 26 is greater than her income of ₹ 24.

At consumer's equilibrium,

\[ MRS_{XY}=\frac{P_X}{P_Y} \]

\[ MRS_{XY}=\frac{4}{2}=2 \]