A cosumer consumes only two good . Explain consumer's equilibrium with the help of utilityanalysis.

A cosumer consumes only two good . Explain consumer's equilibrium with

1.	A cosumer consumes only two good . Explain consumer's equilibrium with the help of utilityanalysis.
Answer» Solution :Assuming that only two goods the consumer consumes are X and Y , the conditions of equilibrium are : (i)`(MU_(x))/(P_(x))=(MU_(y))/(P_(y))` (II)MUof a goodfalls as more of it is consumed Explaination: (i)Suppose`(MU_(X))/(P_(X))GT(MU_(y))/(P_(Y))` .Theconsumer will not be in equilibrium because per rupee MUof X isgreater than per rupee MU ofY. This will induce the consumer to BUY more of X by reducing expenditure on Y. It will lead to FALL in MUxand rise in MUy . This will continuetill`(MU_(x))/(P_(x))=(MU_(y))/(P_(y))`. (ii)Unless MUfalls ae more of a good isconsumed the consumer will not reach equilibrium. `("Explanation based on "(MU_(x))/(P_(x))lt(MU_(y))/(P_(y))" is ALSO correct".)`