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» Solution :Marginal rate of substitution (MRS) of X and Y is more than the price ratio of two GOODS, it MEANS that to obtain one more UNIT of X, the CONSUMER 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 EQUAL to the ratio of prices and the equilibrium is achieved.