A consumer consumers only two goods X and Y both priced at Rs 3 per unit. If the consumer choose a combination of these two goods with Marginal Rate of Substitution equal to 3, is the consumer in equilibrium ? Give reasons. What will a reational consumer do in this situation? Explain.

A consumer consumers only two goods X and Y both priced at Rs 3 per un

1.	A consumer consumers only two goods X and Y both priced at Rs 3 per unit. If the consumer choose a combination of these two goods with Marginal Rate of Substitution equal to 3, is the consumer in equilibrium ? Give reasons. What will a reational consumer do in this situation? Explain.
Answer» Solution :Given `P_(x) = 3, P_(y) = 3 " and " MRS = 3`. A CONSUMER is said to be in EQUILIBRIUM when `MRS = (P_(x))/(P_(y))` Substituting values we find that: `3 gt (3)/(3)` i.e., `MRS gt (P_(x))/(P_(y))` Therefore, consumer is not in equilibrium. `MRS gt (P_(x))/(P_(y))` means that consumer is willing to pay more for one more unit of `x` as compared to what market demands. `-` The consumer will BUY more units of `x`. `-` As a RESULT, MRS will fall due to the Law of Diminishing MARGINAL Utility. `-` This will continue till `MRS = (P_(x))/(P_(y))` and consumer is in equilibrium.