Question

A consumer consumes only two goods X and Y. Price of X rises. Explain the reaction of
the consumer with the help of utility analysis.

Answer 1

Hey...Here it is....................

Answer 2

A consumer consumes the commodities X which is equal to Y at the level,

The marginal utility of a Rupee spent on commodity X = Marginal utility of a Rupee spent on commodity Y = Marginal Utility of Money

MUx/Px = MUy/Py = MUm

However, the price of X rises, that means,

The ratio of the marginal utility to the price of X will become less than that of Y

MUx/Px < MUy/Py

It is required to rearrange the consumption combination in such case.