A consumer consumes only two goods X and Y. Marginal utilities of X and Y is 3 and 4 respectively. Prices of X and Y are Rs 4 per unit each. Is consumer in equilibrium? What will be further reaction of the consumer? Give reasons.
In case of two goods, a consumer strikes equilibrium when
Thus, if a consumer is not in equilibrium, then the consumer increases the consumption of Good Y and decreases that of Good X to reach the equilibrium.