Question

Suppose the MU of X is 20 and its price is Rs. 4 while the MU of Y is 50 and its price is Rs. 5. The
consumer is spending Rs. 20 on each good. Is he maximising satisfaction? Why or why not?

Answer 1

According to law of equi-marginal utility,

the condition for consumer equilibrium is:

MUx/ Px= MUy/ Py = MU per unit of money

20/ 4 = 50/5 = 40(₹20 on each good) is the equilibrium condition.

since 20/4≠50/5≠40, therefore the consumer is not maximizing satisfaction from consumption of these two commodities.