A consumer consumes goods X and Y. Given below is his marginal utility

A consumer consumes goods X and Y. Given below is his marginal utility schedule for goods X and Y. Suppose the price of X is Rs. 2, Y is Rs. 1 and income Rs. 12, State the law of Equimarginal utility and explain how the consumer will attain equilibrium.Units123456MUX1614121086MUY11109876

Answer»

The law of equi-marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spent on each good is equal.

Units of X	MU of X	MU_x/P_x	Units of Y	MU of Y	MU_y/P_y
1	16	8	1	11	11
2	14	7	2	10	10
3	12	6	3	9	9
4	10	5	4	8	8
5	8	4	5	7	7
6	6	3	6	6	6

The equilibrium condition is satisfied when the consumer consumes the goods in the combination of 1 unit of Good X and 4 units of Good Y.

At this level of consumption, the total expenditure of the consumer is :

(1 × Rs.2) + (4 × Rs. 1) = 2 + 4 = 6 This is attainable also in his given income of Rs. 12.

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