Question

A consumer buys only two goods, x and y. if the mrs between x and y is 2 and the marginal utility of x is 20, what is the marginal utility of y? if the mrs between x and y is 3 and the marginal utility of y is 3, what is the marginal utility of x? if a consumer moves downward along an indifference curve, what happens to the marginal utilities of x and y? what happens to the mrs?

Answer 1

(c) diminishing marginal utility of money (d) consumer's equilibrium. 2. ... 3. Consumer equilibrium in case of two commodities(say X and Y) is struck when:.

Answer 2

The formula for Marginal rate of substitution or MRS is the following

MRS= $\frac{MUx}{MUy}$

To find MUy:

2=$\frac{20}{MUy}$

10 = MUy

To find MUx

3 = $\frac{MUx}{3}$

9 = MUx

The indifference curve is showing different combinations of two different goods, which offer the same level of satisfaction to the consumer.

Marginal Rate of Substitution is the rate at which the consumer is willing to sacrifice one good to obtain one more unit of the other good.If a consumer wants to have more of x, it reduces the MU of x. Therefore, he will be willing to sacrifice less unit of y.

As the consumer obtains more and more of x, MU of x starts declining so he will sacrifice less and less of good Y. This is why consumer moves downward along the indifference curve