1.

Show that consumer of a commodity buys more of it when its price falls ? Use utility analysis.

Answer»

In utility analysis, a consumer is in eq equilibrium, assuming he consumes only two goods X and Y, when

MUx/Px=MUy/Py

Now suppose Px falls. It makes

MUx/Px> MUy/Py

Since per rupee MUx is greater than per rupee MUy, the consumers will buy more of X. It shows an inverse relationship between the price of X and demand of X.



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