A consumer, Mr Aman is in state of equilibrium consuming two goods X and Y , with given prices `P_X` and `P_Y`.(a) What will happen if `(MU_X)/(P_X)gt(MU_Y)/(P_Y)` ? (b)What will happen if `P_Y` falls.

Answer

N/a

Explanation

(a)If `(MU_X)/(P_X)gt(MU_Y)/(P_Y)` , then it means that satisfaction derived by Mr. Aman from consumption of good X is greater than the satisfaction derived by him from consumption of good Y.
Mr. Aman will buy more of X and less of Y. Law of DMU applies , `MU_X` falls and reverse preposition occurs for good Y (`MU_Y` rises).This process will continue till `(MU_X)/(P_X)` becomes equal to `(MU_Y)/P_Y`
(b)If price of good Y falls then it would mean :
`(MU_X)/P_X lt (MU_Y)/P_Y`, Mr. Aman gets more marginal utility from the last rupee spent on Y as compared to X.
He will reallocate his income by substituting good Y for good X. Thus he prefers to buy more of Y and less of X. Law of DMU operates . It will cause fall in `MU_Y` and rise in `MU_X` . The consumer would continue to buy more of Y till `(MU_X)/P_X =(MU_Y)/P_Y`.