Question

3. Consumer equilibrium in case of two commodities (say X and Y) is struck when: (a)MUx/Px=MUm (b)MUx/Px>MUy/Py (c)MUx/px=muy/py=MUm (d)MUx/Px

Answer 1

Consumer equilibrium in case of two commodities (say X and Y) is struck when: (a)MUx/Px=MUm (b)MUx/Px>MUy/Py (c)MUx/px=muy/py=MUm (d)MUx/Px

Explanation:

When two commodities are consumed by the consumer and the prices are not equal, equilibrium will be achieved when consumer equates the ratio of marginal utility derived from one commodity compared to it's price with the ratio of the marginal utility of another commodity compared to it's price.Both two ratios ought to be equal to the marginal utility of money as given.

MU X=MU Y=MU M

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