If for a rational consumer the MU_X is twice as much as the MU_y then the consumer reaches equilibrium when,
The price of good Y is twice price of X.
The price of good X is half of price of Y.
The price of good X is twice price of Y.
Price of good X is 2 birr.
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The Equi-Marginal Utility theory states that consumers will maximise total utility from their incomes by consuming that combination of goods where:
MU
b
MU
a
=
P
b
P
a
For example, suppose bread = Re.1 and Rice = Rs.2.
Rice is twice as expensive as bread. Therefore, it would make sense to choose a quantity of rice, where the marginal utility of rice was twice the MU of bread. Therefore, you would tend to buy such a quantity of rice so as to make sure the marginal utility of rice justifies its higher price.
If rice was giving three times as much marginal utility but was only twice as expensive, it would make sense to buy more rice until the marginal utility fell to that ratio.
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price of good x is twice price of y
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