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.

A consumer consumes only two goods X and Y whose price are Rs 4 and Rs

1.	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» 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))` Substituting values, we find that: `(5)/(4) gt (4)/(5) " or " (MU_(x))/(P_(x)) gt (MU_(y))/(P_(y))` Since per RUPEE `MU_(x)` is higher than per rupee `MU_(y)`, consumer is not in equilibrium. The consumer will buy more of `x` and less of `y`. As a RESULT `MU_(x)` will fall and `MU_(y)` will rise. The REACTION will CONTINUE TILL `(MU_(x))/(P_(x)) " and " (MU_(y))/(P_(y))` are equal and consumer is in equilibrium.