Question

State whether true or false:

If `(MU_x)/P_x > (MU_y)/P_y`, then the consumer should buy more of commodity Y and less of commodity X to reach the equilibrium position.

Answer 1

This statement is false.

Reason:

• The inequality means that X gives more marginal utility per rupee than Y.
• The consumer should buy more of X and less of Y; this lowers MU from X and raises MU from Y.
• The consumer adjusts purchases until the marginal utility per rupee is equal for both goods.