InterviewSolution
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InterviewSolution
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A consumer consumes only two goods X and Y whose prices are Rs. 4 and Rs. 5 per unit respectiveely. If the consumer chooses 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 ? Given reasons . What will a rational consumer do in this situation ? Use utility analysis. |
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Answer» Given `P_(x)=4,P_(y)=5and 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 rupess `MU_(x)` is higher than per rupee `MU_(y)` , consumer is not in equilibrium. The consumer will continue till `(MU_(x))/(P_(x))and(MU_(y))/(P_(y))` are equal and consumer is in equilibrium. |
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