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A consumer consumes only two goods X and Y whose price are Rs 4 and Rs 5 per unit respectively. If the consumer choose 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 reasons. what will a rational consumer do in this situation ? Use utility analysis.

Answer» <html><body><p></p>Solution :Given `P_(x) = 4, P_(y) = 5 " and " MU_(x) = 5, MU_(y) = 4`. A consumer will be in equilibrium when `(MU_(x))/(P_(x)) = (MU_(y))/(P_(y))` <br/> Substituting values, we find that: <br/> `(5)/(4) gt (4)/(5) " or " (MU_(x))/(P_(x)) gt (MU_(y))/(P_(y))` <br/> Since per <a href="https://interviewquestions.tuteehub.com/tag/rupee-1192322" style="font-weight:bold;" target="_blank" title="Click to know more about RUPEE">RUPEE</a> `MU_(x)` is higher than per rupee `MU_(y)`, consumer is not in equilibrium. <br/> The consumer will buy more of `x` and less of `y`. As a <a href="https://interviewquestions.tuteehub.com/tag/result-1187343" style="font-weight:bold;" target="_blank" title="Click to know more about RESULT">RESULT</a> `MU_(x)` will fall and `MU_(y)` will rise. The <a href="https://interviewquestions.tuteehub.com/tag/reaction-22747" style="font-weight:bold;" target="_blank" title="Click to know more about REACTION">REACTION</a> will <a href="https://interviewquestions.tuteehub.com/tag/continue-409821" style="font-weight:bold;" target="_blank" title="Click to know more about CONTINUE">CONTINUE</a> <a href="https://interviewquestions.tuteehub.com/tag/till-709848" style="font-weight:bold;" target="_blank" title="Click to know more about TILL">TILL</a> `(MU_(x))/(P_(x)) " and " (MU_(y))/(P_(y))` are equal and consumer is in equilibrium.</body></html>


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