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A consumer consumers only two goods X an...

A consumer consumers only two goods X and Y. Marginal utilities of X and Y are 4 and 3 respectively. Price of X and price of Y is Rs.3 per unit. Is consumer in equilibrium ? What will be further reaction of the consumer ? Give reasons.

Text Solution

Verified by Experts

The correct Answer is:
N/a
For a consumer to be in equilibrium ,
`(MU_X)/P_X=(MU_Y)/P_Y`
According to the question
`(MU_X)/P_X gt (MU_Y)/P_Y " " or " " 4/3 gt 3/3 " " or " " 1.33 gt 1`
Hence the consumer is not in equilibrium . Since per rupee `MU_X` is greater than per rupee `MU_Y` or commodity X gives the consumer more satisfaction than commodity Y, the consumer will start buying more of X and less of Y. Law of DMU applies `MU_X` falls and `MU_Y` rises till equilibrium is reached at `(MU_X)/P_X=(MU_Y)/P_Y`
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