Advertisement Remove all ads

A Consumer Consumes Only Two Goods X and Y Whose Prices Are Rs 2 and Rs 1 per Unit Respectively. It the Consumer Chooses a Combination of the Two Goods with Marginal Utility of X Being 4 and that of - Economics

A consumer consumes only two goods X and Y whose prices are Rs 2 and Rs 1 per unit respectively. It the consumer chooses a combination of the two goods with marginal utility of X being 4 and that of Y also being 4, is the consumer in equilibrium ?Give reasons. Explain what will a rational consumer do in this situation. Use Marginal Utility Analysis.

Advertisement Remove all ads

Solution

The consumer reaches equilibrium only if the following condition is satisfied

`"MU"_x/P_x = "MU"_y/P_y`

Give that

`"MU"_x/P_x = 4/2`

`"MU"_y/P_y= 4/1`

Here `"MU"_y/P_y` is greater than `"MU"_x/P_x` the rational consumer would try to satisfy the condition by increasing the consumption of Good-Y and forego the consumption of Good-X.

Concept: Consumer'S Equilibrium
  Is there an error in this question or solution?
Advertisement Remove all ads
Advertisement Remove all ads
Advertisement Remove all ads
Share
Notifications

View all notifications


      Forgot password?
View in app×