Question

a consumer consumes only two goods x and y whose prices are rs 2 and rs 1 per unit respectively. if the consumer choosesthe combination of the two goods with marginal utility of x veing 4 and that of y also being 4 , is consumer in equilibrium? give reason. explain what will a rational consumer do in this situation.use marginal utility analysis ​

Answer 1

Answer:

a consumer consumes only two goods x and y whose prices are rs 2 and rs 1 per unit respectively. if the consumer choosesthe combination of the two goods with marginal utility of x veing 4 and that of y also being 4 , is consumer in equilibrium? give reason. explain what will a rational consumer do in this situation.use marginal utility analysis

Answer 2

Answer:

MUx/Px=4/2

MUy/Py=4/1

Explanation:

MUx/Px=MUy/Py

which is not true in this case,i.e, the consumer is not in equilibrium

As MUy/Py>MUx/Px  , a Rational consumer will buy more of y commodity and less of x commodity. MUy will fall and MUx will rise (in accordance to law of diminishing marginal utility. This will continue till MUy/Py=MUX/Px,i.e, the consumer reaches equilibrium.