Question

a consumer consumes two goods X and Y and he is in equilibrium.what will happen if MUx/Px is greater than MUy/Py?Explain

Answer 1

When MUx/Px will be greater than the MUy/Py, then it means that the consumer is deriving more satisfaction from the commodity X. So he will spend more of his income on consumption of that commodity. He will sacrifice more of Y to gain an additional unit of Y. Now according to law of DMU his MU from each successive units of X will keep on diminishing until it reach a point when MUx/Px = MUy/Py