A consumer consumes only two goods X and Y and is in equilibrium. Price of X falls. Explain the reaction of consumer through the Utility Analysis, OR Suppose a consumer spends his entire income on two goods. X and Y. If he has attained the point of equilibrium through utility analysis, then he will not change his allocation of expenditure on the two goods X and Y, even if price of good X falls. Defend or Refute.

A consumer consumes only two goods X and Y and is in equilibrium. Pric

1.	A consumer consumes only two goods X and Y and is in equilibrium. Price of X falls. Explain the reaction of consumer through the Utility Analysis, OR Suppose a consumer spends his entire income on two goods. X and Y. If he has attained the point of equilibrium through utility analysis, then he will not change his allocation of expenditure on the two goods X and Y, even if price of good X falls. Defend or Refute.
Answer» Solution :In case of two goods X and Y, a consumer will be at EQUILIBRIUM when `(MU_(X))/(P_(X)) = (MU_(Y))/(P_(Y))`. When price of X falls, then rupee worth of satisfaction from X will be more than Y, i.e, `(MU_(X))/(P_(X)) GT (MU_(Y))/(P_(Y))`. Therefore, he will buy more of X and less of Y. this will LEAD to fall in `MU_(X)` and rise in `MU_(Y)`. The consumer will continue to buy more of X till `(MU_(X))/(P_(X)) = (MU_(Y))/(P_(Y))`