Question

A consumer consumes two goods x and y are is in equilibrium. Price of good y falls. What will be the reaction of the customer

Answer 1

Answer:

The consumer is in equilibrium when MUx / Px=MUy / Py. Given that Px falls, therefore, MUx /Px >MUy /Py. ... Accordingly, the consumer will start buying more of X commodity in place of Y commodity. When consumption of X increase, MUx must fall, while a cut in consumption of Y would mean a rise in MUy.

Explanation:

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