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.
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.