A consumer consumes only two goods A and B and is in equilicbrium . Price of good a falls . Show that it will lead to rise in dmand for good A . Use Utility Analysis.

A consumer consumes only two goods A and B and is in equilicbrium . Pr

1.	A consumer consumes only two goods A and B and is in equilicbrium . Price of good a falls . Show that it will lead to rise in dmand for good A . Use Utility Analysis.
Answer» When consumer is in equilibrium : `(MU_(A))/(P_(A))=(MU_(B))/(P_B)` When price of good A `(P_(A))` falls , then `(MU_(A))/(P_(A))gt(MU_(B))/(P_B)` Since per rupee marginal utility of A `(MU_(A))` is now higher than per rupee `MU_(B)` , the consumer will divert expenditure from good B to good A. This raises demand for good A.

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A consumer consumes only two goods A and B and is in equilicbrium . Price of good a falls . Show that it will lead to rise in dmand for good A . Use Utility Analysis.

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