Question

29.In a situation when MRSxy > Px/Py, the consumer would react by:​

Answer 1

Answer:

consumer should start consuming more of X in place of Y.

Explanation:

the consumer should move downward to the right along the IC . Convexity of the IC ensures that as the consumer moves downward to the right along his IC, MRS^xy tends to fall.

Answer 2

No. In a situation when P

X

and P

Y

are constant, and MRS

XY

>

P

Y

P

X

, the satisfaction level of the consumer will be less than when MRS

XY

=

P

Y

P

X

. Provided, of course, that the consumer does not cross his budgetary constraint. In other words, along with constant P

X

and P

Y

, income of the consumer must also remain constant.