Question

A consumer consumes only two goods each priced at rs. 1 per unit. If the consumer chooses a combination of the two goods with marginal rate of substitution equal yo 2

Answer 1

equation is

Mrsxy= px/py

2 = 1/1

2 is greater than 1/l

so its mean that consumers are buying more and more of good X and less and less of good y , it will decrease the marginal rate of substitute because of law of diminishing marginal utility and then consumer will buy less and less of good X and increase consumption of good y this leads to

mrsxy=px/py