Question

A consumer consumes only two goods X and Y whose prices are Rs. 5 and Rs. 6
per unit respectively. If the consumer chooses a combination of the goods with
MU of X equal to 35 and that of Y equal to 30, is the consumer in equilibrium?
Give reasons. What will a rational consumer do in this situation? Use utility analysis.
​

Answer 1

Given:

Px = 5, Py = 6 and MUx = 35, MUy = 30.A

consumer will be equilibrium when MUx MUy

____ = ____

Px Py

Substituting values, we find that:

35 30 MUx MUy

__ > __ or ____ >____

5 6 Py Py

since per rupee MUx is higher than per rupee MUy, consumer is not in equilibrium. The consumer will buy more of X and less of Y. As a result MUx will fall and MUy will rise. The reaction will continue till MUx MUy are equal and

____ and ____

Px Py

consumer is in equilibrium.