A consumer spends his entire income on two goods: X and Y. Currently his marginal rate of substitution (MRS) of X and Y is more than the price ratio of two goods. Discuss the changes that will take place so that consumer is able to reach the equilibrium position.

A consumer spends his entire income on two goods: X and Y. Currently h

1.	A consumer spends his entire income on two goods: X and Y. Currently his marginal rate of substitution (MRS) of X and Y is more than the price ratio of two goods. Discuss the changes that will take place so that consumer is able to reach the equilibrium position.
Answer» <html><body><p></p>Solution :Marginal rate of substitution (MRS) of X and Y is more than the price ratio of two <a href="https://interviewquestions.tuteehub.com/tag/goods-1009877" style="font-weight:bold;" target="_blank" title="Click to know more about GOODS">GOODS</a>, it <a href="https://interviewquestions.tuteehub.com/tag/means-1091780" style="font-weight:bold;" target="_blank" title="Click to know more about MEANS">MEANS</a> that to obtain one more <a href="https://interviewquestions.tuteehub.com/tag/unit-1438166" style="font-weight:bold;" target="_blank" title="Click to know more about UNIT">UNIT</a> of X, the <a href="https://interviewquestions.tuteehub.com/tag/consumer-25599" style="font-weight:bold;" target="_blank" title="Click to know more about CONSUMER">CONSUMER</a> is willing to sacrifice more units of Y as compared to what is required in the market. It induces the consumer to buy more of X. As a result, MRS falls and continue to fall till it becomes <a href="https://interviewquestions.tuteehub.com/tag/equal-446400" style="font-weight:bold;" target="_blank" title="Click to know more about EQUAL">EQUAL</a> to the ratio of prices and the equilibrium is achieved.</body></html>