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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» <html><body><p></p>Solution :Given `P_(x) = 3, P_(y) = 3 " and " MRS = 3`. A <a href="https://interviewquestions.tuteehub.com/tag/consumer-25599" style="font-weight:bold;" target="_blank" title="Click to know more about CONSUMER">CONSUMER</a> is said to be in <a href="https://interviewquestions.tuteehub.com/tag/equilibrium-974342" style="font-weight:bold;" target="_blank" title="Click to know more about EQUILIBRIUM">EQUILIBRIUM</a> when `MRS = (P_(x))/(P_(y))` Substituting values we find that: <br/> `3 gt (3)/(3)` <br/> i.e., `MRS gt (P_(x))/(P_(y))` <br/> Therefore, consumer is not in equilibrium. <br/> `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. <br/> `-` The consumer will <a href="https://interviewquestions.tuteehub.com/tag/buy-391430" style="font-weight:bold;" target="_blank" title="Click to know more about BUY">BUY</a> more units of `x`. <br/> `-` As a <a href="https://interviewquestions.tuteehub.com/tag/result-1187343" style="font-weight:bold;" target="_blank" title="Click to know more about RESULT">RESULT</a>, MRS will fall due to the Law of Diminishing <a href="https://interviewquestions.tuteehub.com/tag/marginal-555038" style="font-weight:bold;" target="_blank" title="Click to know more about MARGINAL">MARGINAL</a> Utility. <br/> `-` This will continue till `MRS = (P_(x))/(P_(y))` and consumer is in equilibrium.</body></html>


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