A consumer consumes only two goods X and Y. If marginal utilities of X and Y are 4 and 5 respectively, and if price of X is Rs 5 per unit and that of Y is Rs 4 per unit is the consumer in equilibrium? What will be 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.