if a consumer having total income of rs26 is purchasing and consuming two goods x and y whose prices are rs 10/unit and rs2/unit.Then find out that in following table how many units of x and y should be consume to be in equilibrium.(use utility approach)
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Explanation:
(i) No, the consumer cannot afford a bundle of 4X and 5Y.
Given, money income =Rs.24;P X
=Rs.4 and P Y
=Rs.2, if he purchases 4X and 5Y, then
4×4+5×2=26>24
Therefore, he is not able to buy a bundle of 4X and 5Y.
(ii) When the consumer is in equilibrium : MRS XY = P Y / PX
The price ratio indicates that for every additional unit of Good−X, the consumer has to sacrifice 2 units of Good−Y. So that price ratio is 2:1. Accordingly, in a state of equilibrium, the marginal rate of substitution between Good−X and Good−Y must be equal to 2:1.
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