A Consumer Consumes Only Two Goods X and Y. Marginal Utility of Each is 2. the Price per Unit of X and Y is Re 1 and Rs 2 Respectively. is the Consumer in Equilibrium? What Will Be the Further Reaction of the Consumer? Explain. - Economics

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A consumer consumes only two goods X and Y. Marginal utility of each is 2. The price per unit of X and Y is Re 1 and Rs 2 respectively. Is the consumer in equilibrium? What will be the further reaction of the consumer? Explain.

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Solution

In case of two goods, a consumer strikes equilibrium when

(MU_z)/P_z=(MU_y)/P_y

Given that

(MU_z)/P_z=2/1=2

(MU_y)/P_y=2/2=1

Here

(MU_z)/P_z>(MU)/P_y

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.

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

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