Question

A consumer consumes only two goods X and Y, both priced at rupees 2 per unit. If the consumer chooses a combianation

Answer 1

Wht we have to tell in this ques?

Answer 2

At the point of consumer equilibrium, the following equality should be met:

MRS = Px/Py

MRS = 3 (given)

Px/Py= 3/3 = 1

Thus, MRS is greater than the price ratio.

In order to reach the equilibrium point, a rational consumer would increase the consumption of good X and decrease that of good Y.

Or

According to the utility approach, a consumer reaches an equilibrium where the following equality is met.

MUx/Px = MUY/Py

MUx/Px =5/4 (given)

MUY/Py = 4/5

So MUx/Px is greater than MUY/Py . Thus a rational consumer has to increase the consumption of good X and decrease that of good Y in order to reach equilibrium.

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