Question

a consumer spends his entire income on two goods x and y. currently his Marginal rate of substitution x and y is more than the price ratio of two goods. discuss the changes that will take place so that consumer is able to reach the equilibrium position.............. plz answer me fast........ and give appropriate answer...........​

Answer 1

ANSWER:

• If the ‘marginal rate’ of substitution x and y is more than the ‘price ratio’ of two goods then one will need to substitute between buying more of good x or buying of good y because the 'marginal rate' of substitution between the two goods is not equal to the ratio of their prices and it is not considered as an optimum level.
• The main ‘goal’ of the person is to get maximum satisfaction from the goods X and Y. The ‘marginal rate’ of substitution is when a person to give up an ‘amount’ of a good for another good. This is because the ‘Marginal rate’ of substitution should be equal to the ‘price ratio’ of the goods in an equilibrium position.