Question

If `(MU_X)/P_X> (MU_Y)/P_Y`, then to reach the equilibrium position, consumer should ______.

Options

• Stop buying any commodity

• Buy both the commodities in equal quantity

• Buy more of X and less of Y

• Buy more of (Y) and less of (X)

Answer 1

If `(MU_X)/P_X> (MU_Y)/P_Y`, then to reach the equilibrium position, consumer should Buy more of X and less of Y.

Explanation:

The consumer gets more utility per rupee from X, so should shift expenditure toward X and away from Y. This adjustment continues until the two marginal utility-to-price ratios are equal.