a consumer consumes two goods x and y which are priced at rs.3 and rs.4 respectively. at a particular point of consumption the MU derived from x is 12 and MU derived from y is also 12 . will the consumer be in equilibrium? why? what should a rational consumer do in this situation?
Answers
This is an example of the Two Commodity Case.
In the 2 commodity case, equilibrium is struck when
MUx / Px = MUy / Py
i.e. the utility derived from consuming a unit of Good X is equal to the utility derived from consuming a unit of Good Y.
Hence, in the above question,
MUx = 12
MUy = 12
Px = 3
Py = 4
Hence, putting the variables in the above equation,
12/3 = 12/4
4 = 3
Which is NOT true.
Therefore, MUx / Px > MUy / Py
Hence, the utility derived from consumption of Good X is greater than utility derived from Good Y.
In this case, a rational consumer should consume more of Good X.
As per Law of Diminishing Marginal Utility, as the consumer consumes more units of Good X, his Marginal utility will decrease.
He should continue consuming until he reaches the equilibrium point where, MUx / Px = MUy / Py
Explanation:
रांची में रेस घनश्याम इंग टो गुज x&y इन नई प्रियम दिस प्राइस ऑफ एक्स एन वाई 81 respectively.the ईमेल यूटिलिटी ऑफ गॉड ब्लेस यू व्हाट विल बी द वैल्यू ऑफ एक्स