Question

A consumer consumes only two goods X and Y, her
money income is Rs 24. Prices of the good X = 2 and
good Y = 1 respectively. Can he buy
a)
8 units of X and 10 unit of goods Y
b) 8 units of X and 8 unit of goods Y
C)
What will be MRSXY where consumer is in
equilibrium?​

Answer 1

Answer:

No, the consumer cannot afford a bundle of 4X and 5Y.

Given, money income =Rs.24;P

X

=Rs.4 and P

Y

=Rs.2, if he purchases 4X and 5Y, then

4×4+5×2=26>24

Therefore, he is not able to buy a bundle of 4X and 5Y.

(ii) When the consumer is in equilibrium : MRS

XY

=

P

Y

P

X

The price ratio indicates that for every additional unit of Good−X, the consumer has to sacrifice 2 units of Good−Y. So that price ratio is 2:1. Accordingly, in a state of equilibrium, the marginal rate of substitution between Good−X and Good−Y must be equal to 2:1.

Explanation:

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