A consumer consumes only two goods X and Y whose price are Rs 5 and Rs 6 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 35 and that of Y eqaul to 30, is the consumer in equilibrium? Given reason. 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 5 and Rs

1.	A consumer consumes only two goods X and Y whose price are Rs 5 and Rs 6 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 35 and that of Y eqaul to 30, is the consumer in equilibrium? Given reason. What will a rational consumer do in this situation ? Use utility analysis.
Answer» Solution :Given `P_(X) = 5, P_(Y) = 6 " and MU_(X) = 35, MU_(Y) = 30`. A consumer will be in EQUILIBRIUM when `(MU_(X))/(P_(X)) = (MU_(Y))/(P_(Y))` Substituting values, we FIND that: `(35)/(5) gt (30)/(6) " or " (MU_(X))/(P_(Y)) 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_(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.