A consumer consumers only 2 goods X and Y. The marginal utilities of X and Y is 3. Prices of X and Y are Rs.2 and Rs.1 respectively. Is consumer in equilibrium ? What will be further reaction of the consumer ? Give reasons .

Answer

N/a

Explanation

For a consumer to be in equilibrium, `(MU_X)/P_X` should be equal to `(MU_Y)/P_Y`
According to the question
`(MU_X)/P_X lt (MU_Y)/P_Y " " or " " 3/2 lt 3/1 " " or " " 1.5 lt 3`
Hence the consumer is not in equilibrium.
Since per rupee `MU_X` is lower than per rupee `MU_Y` or commodity Y gives him more satisfaction than commodity X, the consumer will buy more of Y and less of X. Law of DMU applies , `MU_X` rises and `MU_Y` falls till the equilibrium `(MU_X)/P_X=(MU_Y)/P_Y` is reached.