A consumer consumes only two goods X and Y. Marginal utilities of X and Y are 4 and 3 respectively. Price of X and price of Y is Rs 3 per unit. 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 X and decreases that of Good Y to reach the equilibrium.