Advertisement Remove all ads

A Consumer Consumes Only Two Goods X and Y. Marginal Rate of Substitution is 3 and per Unit Prices of X and Y is Rs 4 and Rs 2 Respectively. is the Consumer in Equilibrium? What Will Be the Further Reaction of the Consumer? Give Reasons - Economics

Advertisement Remove all ads
Advertisement Remove all ads
Advertisement Remove all ads

A consumer consumes only two goods X and Y. Marginal rate of substitution is 3 and per unit prices of X and Y is Rs 4 and Rs 2 respectively. Is the consumer in equilibrium? What will be the further reaction of the consumer? Give reasons

Advertisement Remove all ads

Solution

The consumer reaches equilibrium point only when the following condition is satified

`MRS=P_x/P_y`

Given that

MRS = 3

`P_x/P_y=4/2=2`

As MRS is greater than the price ratio, the rational consumer would try to satisfy the condition by increasing the consumption of Good-X and forego the consumption of Good-Y.

Concept: Marginal Rate of Substitution (MRS)
  Is there an error in this question or solution?
Advertisement Remove all ads
Share
Notifications

View all notifications


      Forgot password?
View in app×