Question

According to law of equimarginal utility, consumer will be in equilibrium while purchasing X and Y commodities when:

Options

• MUₓ = Pₓ

• $$\frac{\mathrm{MU}_{\mathrm{x}}}{\mathrm{P}_{\mathrm{x}}} = \frac{\mathrm{P}_{\mathrm{y}}}{\mathrm{MU}_{\mathrm{y}}}$$

• $$\frac{\mathrm{MU}_{\mathrm{x}}}{\mathrm{P}_{\mathrm{x}}} = \frac{\mathrm{MU}_{\mathrm{y}}}{\mathrm{P}_{\mathrm{y}}}$$

• None of these

Answer 1

$$\frac{\mathrm{MU}_{\mathrm{x}}}{\mathrm{P}_{\mathrm{x}}} = \frac{\mathrm{MU}_{\mathrm{y}}}{\mathrm{P}_{\mathrm{y}}}$$

Explanation:

Equilibrium requires equal marginal utility per unit of money spent on both goods, subject to the consumer's budget constraint.