A Consumer Consumes Only Two Goods X and Y. the Marginal Utilities of X and of Y is 3. Prices of X and Y Are Rs 2 and Rs 1 Respectively. is Consumer in Equilibrium? What Will Be Further Reaction of the Consumer? - Economics

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A consumer consumes only two goods X and Y. The marginal utilities of X and of Y is 3. Prices of X and Y are Rs 2 and Rs 1 respectively. Is consumer in equilibrium? What will be further reaction of the consumer?

Give reasons.

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Solution

`(MU_x)/P_x=(Mu_y)/P_y`

As we know that

`(MU_x)/P_x=3/2=1.5`

`(MU_y)/P_y=3/1=3`

Here, 

`(MU_y)/P_y>(MU_x)/P_x`

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.

Concept: Conditions of Consumer's Equilibrium Using Marginal Utility Analysis
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2015-2016 (March) All India Set 3

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