A consumer consumes only two goods X and Y. At a consumption level of these two goods, he finds that the ratio of marginal utility of price in case of X is higher than in case of Y. Explain the reaction of the consumer.

A consumer consumes only two goods X and Y. At a consumption level of

1.	A consumer consumes only two goods X and Y. At a consumption level of these two goods, he finds that the ratio of marginal utility of price in case of X is higher than in case of Y. Explain the reaction of the consumer.
Answer» SOLUTION :It means that at some consumption LEVEL, `(MU_(X))/(P_(X)) gt (MU_(Y))/(P_(Y))`. In this case, the consumer is GETTING more marginal utility per rupee in case of good X as compared to Y. THEREFORE, he will buy more of X and less of Y. this will LEAD of 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))`