Question

Suppose you have a budget of 1000 taka. The price of one unit of X is 20 taka, and the price of one unit of Y is 10 taka. If X provides you utility and Y gives you disutility, what is the equilibrium amount of X and Y for the consumer? Explain your answer using appropriate graph

Answer 1

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Answer 2

Answer:

In case of two commodities, the consumer's equilibrium is attained at the point where the utility derived from each additional unit rupee spent on each of the goods is equal. That is, Marginal Utility of a Rupee spent on the good

​In such a case , the consumer rearranges his consumption combination such that the equality is again restored. He would decreases his consumption of commodity X. With this decreases, marginal utility of x rises, As a result the ratio of marginal utility to price of X rises. The consumer would continue decreasing the consumption of commodity X till the equality between the ratio of marginal utility to price in case of X and Y is again reached.

Explanation:

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