A consumer consumes only two good X and Y both priced at Rs.3 per unit. If the consumer chooses a combination of these two goods with Marginal Rate of Substitution equal to 3, is the consumer in equilibrium ? Give reasons. What will a rational consumer do in this situation ? Explain. OR A consumer consumes only two goods X and Y whose prices are Rs.4 and Rs.5 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 5 and that of Y equal to 4, is the consumer in equilibrium? Give reason. What will a rational consumer do in this situation? Use utility analysis.

A consumer consumes only two good X and Y both priced at Rs.3 per unit

1.	A consumer consumes only two good X and Y both priced at Rs.3 per unit. If the consumer chooses a combination of these two goods with Marginal Rate of Substitution equal to 3, is the consumer in equilibrium ? Give reasons. What will a rational consumer do in this situation ? Explain. OR A consumer consumes only two goods X and Y whose prices are Rs.4 and Rs.5 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 5 and that of Y equal to 4, is the consumer in equilibrium? Give reason. What will a rational consumer do in this situation? Use utility analysis.
Answer» <html><body><p></p>Solution :At the <a href="https://interviewquestions.tuteehub.com/tag/point-1157106" style="font-weight:bold;" target="_blank" title="Click to know more about POINT">POINT</a> of consumer equilibrium the following equality should be met : <br/>`MRS=(P_(x))/(P_(y))`<br/> According to the question, <br/> MRS=3 <br/> `(P_(x))/(P_(y))=(3)/(3)=1`<br/>So, MRS is greater than the price ratio. Thus, to reach the equilibrium point a <a href="https://interviewquestions.tuteehub.com/tag/rational-613044" style="font-weight:bold;" target="_blank" title="Click to know more about RATIONAL">RATIONAL</a> consumer would decrease the consumption of <a href="https://interviewquestions.tuteehub.com/tag/good-1009017" style="font-weight:bold;" target="_blank" title="Click to know more about GOOD">GOOD</a> y.<br/>OR<br/>According to the utility approach, a consumer reaches equilibrium where the following equality is met. <br/> `(MU_(x))/(P_(x))=(MU_(y))/(P_(y))`<br/>According to the given question, <br/>`(MU_(x))/(P_(x))=(5)/(4)`<br/>`(MU_(y))/(P_(y))=(4)/(5)`<br/> So, `(MU_(x))/(P_(x))` is greater than `(MU_(y))/(P_(y))`. Thus, to reach the equilibrium, a rational consumer would <a href="https://interviewquestions.tuteehub.com/tag/increase-1040383" style="font-weight:bold;" target="_blank" title="Click to know more about INCREASE">INCREASE</a> the consumption of good x and decrease that of good y.</body></html>

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