Question

A consumer consumes only two goods X and Y and is in equilibrium . Price of good Y rises. Show that it will lead to fall in demand for good Y

Answer 1

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According to the utility analysis, the consumer is in equilibrium when: MUx/Px=MUy/Py=Mum Now, given that Px falls,then MUx/Px> MUy/Py Since per rupee MUx is higher than per rupee MUy the consumer will buy more units of X commodity and less of Y commodity