Question

A consumer is in equilibrium in consuming two Goods X and Y. With the help of utility analysis, show that if the price of Good X falls, then its demand would rise.

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Answer 1

According to the utility analysis, the consumer is in equilibrium when:

MUx/Px=MUy/Py=Mum

Now, given that Px falls,then

MUx/Px> MUy/Py

Since per rupee MUx is higher than per rupee MUy the consumer will buy more units of X commodity and less of Y commodity.