Question

Que 2. The monthly income of Mr. Ramesh is given as Rs. 600 which he spends on
two products, food and clothing. The price of food is Rs. 30 and that of clothing is Rs.
10. If he consumes 12 units of food and 24 units of clothing, his marginal rate of
substitution is 1 unit of cloth/ 1 unit of food. At this point on the budget line, is
Ramesh in equilibrium? Draw a figure to show the result.

Answer 1

Answer:

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Answer 2

Given:- Monthly Income of Ramesh is Rs.600.

            The price of the food is Rs. 30.

            and clothing is Rs.10.

He consumes 12 units of food and 24 units of clothing

MRSxy=Px/Py

To Find:- The equilibrium on the budget line.

Solution:- Total price of food =30*12=360

                 The Total price of clothing is = 10*24=240

                 His monthly income is Rs.600.

                 Therefore, the budget line is price of food* unit of food+price of                commodity *unit of commodity= Monthly income

                  Budget Line= 12x+24y=600

                 The IC curve cuts the budget line at point E which is the equilibrium point in the diagram.

Hence, E is the point on the budget line, Ramesh is in equilibrium.