Question

If a both price at rs 3 per unit, consumer consume only two goodsX and Y, if a consumer choose a combination of these two goods with marginal rate of substitution equal to 3,is the consumer is in equilibrium?

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10th

Economics

Consumer Rights

Consumer Exploitation and Protection

A comsumer consumes only tw...

ECONOMICS

A comsumer consumes only two goods X and Y whose prices are Rs. 2 and Rs. 1 per unit respectively. It the consumer chooses a combination of the two goods with marginal utility of X being 4 and that of Y also being 4, is the consumer in equilibrium? Give reasons. Explain what will a rational consumer do in this situation. Use Marginal Utility Analysis.

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ANSWER

According to the utility approach, a consumer reaches equilibrium where the following equality is met.

P

x

MU

x

=

P

y

MU

y

According to the given question

P

x

MU

z

=

2

4

P

y

MU

y

=

1

1

So,

P

y

MU

y

is greater than

P

x

MU

x

. Thus, to reach the equilibrium, a rational consumer would increase the

P

x

P

y

of good x.