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A Consumer Consumes Only Two Goods X and Y. the Marginal Rate of Substitution is 2. Prices per Unit of X and Y Are Rs 5 and Rs 4 Respectively. is Consumer in Equilibrium? What Will Be the Further Reaction of the Consumer? Give Reasons. - CBSE (Arts) Class 12 - Economics

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Question

A consumer consumes only two goods X and Y. The Marginal Rate of Substitution is 2. Prices per unit of X and Y are Rs 5 and Rs 4 respectively. Is consumer in equilibrium? What will be the further reaction of the consumer? Give reasons.

Solution

The consumer reaches equilibrium point only when the following condition is satified

`MRS=P_x/P_y`

Given that

`P_x/P_y=5/4=1.25`

As MRS is greater than the price ratio, the rational consumer would try to satisfy the condition by increasing the consumption of Good-X and forego the consumption of Good-Y.

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Solution A Consumer Consumes Only Two Goods X and Y. the Marginal Rate of Substitution is 2. Prices per Unit of X and Y Are Rs 5 and Rs 4 Respectively. is Consumer in Equilibrium? What Will Be the Further Reaction of the Consumer? Give Reasons. Concept: Marginal Rate of Substitution (MRS).
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