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

Answer» <html><body><p></p>Solution :Assuming that only two goods the consumer consumes are X and Y , the conditions of equilibrium are :<br/>(i)`(MU_(x))/(P_(x))=(MU_(y))/(P_(y))`<br/>(<a href="https://interviewquestions.tuteehub.com/tag/ii-1036832" style="font-weight:bold;" target="_blank" title="Click to know more about II">II</a>)MUof a goodfalls as more of it is consumed<br/>Explaination:<br/>(i)Suppose`(MU_(X))/(P_(X))<a href="https://interviewquestions.tuteehub.com/tag/gt-1013864" style="font-weight:bold;" target="_blank" title="Click to know more about GT">GT</a>(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 <a href="https://interviewquestions.tuteehub.com/tag/buy-391430" style="font-weight:bold;" target="_blank" title="Click to know more about BUY">BUY</a> more of X by reducing expenditure on Y. It will lead to <a href="https://interviewquestions.tuteehub.com/tag/fall-983217" style="font-weight:bold;" target="_blank" title="Click to know more about FALL">FALL</a> in MUxand rise in MUy . This will continuetill`(MU_(x))/(P_(x))=(MU_(y))/(P_(y))`.<br/>(ii)Unless MUfalls ae more of a good isconsumed the consumer will not reach equilibrium.<br/>`("Explanation based on "(MU_(x))/(P_(x))lt(MU_(y))/(P_(y))" is <a href="https://interviewquestions.tuteehub.com/tag/also-373387" style="font-weight:bold;" target="_blank" title="Click to know more about ALSO">ALSO</a> correct".)`</body></html>


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