The prices of good X and good Y are ₹4 and ₹2 respectively and a consumers income is ₹40 Answer the following questions. (a) can the consumer consume a bundle 5 X, 10 Y? (b) If MRSxy is 3, is the consumer in equilibrium? Justify. (c) what should the consumers do to maximize satisfication, given her budget constriant? Explain.
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Answer:
STATISTICS
A consumer consumes only two goods X and Y. Her money income is Rs.24 and the prices of Goods X and Y are Rs.4 and Rs.2 respectively. Answer the following questions:
(i) Can the consumer afford a bundle 4X and 5Y? Explain
(ii) What will be the MRS
XY
when the consumer is in equilibrium? Explain.
December 26, 2019
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Samruta Shriya
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ANSWER
(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
P
X
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.