Question

4. A consumer consumes X&Y. her money income is rupees 24 and the prices of X&Y are rupees 4 and rupees 2 respectively. Answer the following questions

Answer 1

Answer:

Given,

Money Income (M)= Rs 24

Px=  Rs 4

Py= Rs 2

In response to the first part of your query, the consumer can not afford the bundle 4X and 5Y as this bundle exceeds the given money income of the consumer. We can show the same with the help of the budget line equation i.e.

Px×Qx+Py×Qy=MIn case of the bundle 4X and 5Y,4×4+2×5=26>24 (given money income)

Hence, the consumer cannot afford this bundle.

In response to the second part of the query, a consumer attains equilibrium at a point where the slope of the budget line is equal to the slope of indifference curve i.e.

∣∣−PxPy∣∣=∣∣MRSxy∣∣∣∣−42∣∣=MRSxyHence at equilibrium, MRSxy=2

Explanation: