question_answer

Vishnu consumes two commodities X and Y, whose prices are Rs.16 and Rs.24 per unit respectively. His\[_{X}\]= 6 and \[_{y}\]= 4, then according to utility approach, state whether Vishnu is in equilibrium? If not, then tell what should  he do to achieve equilibrium. Differentiate between individual demand curve and market demand curve.    

Answer:

A consumer strikes his equilibrium when,  \[\frac{M{{U}_{X}}}{{{P}_{X}}}=\frac{M{{U}_{y}}}{{{P}_{y}}}\] Now, as per the given information,\[\frac{M{{U}_{X}}}{{{P}_{X}}}=\frac{6}{16}=\frac{3}{8}and\frac{M{{U}_{y}}}{{{P}_{y}}}=\frac{4}{24}=\frac{1}{6}\] \[\frac{M{{U}_{X}}}{{{P}_{X}}}>\frac{M{{U}_{y}}}{{{P}_{y}}}\] So, Vishnu is not in equilibrium. Now,\[\frac{M{{U}_{X}}}{{{P}_{X}}}>\frac{M{{U}_{y}}}{{{P}_{y}}}[\therefore \frac{3}{6}>\frac{1}{6}]\] Therefore, to attain equilibrium, Vishnu should start consuming more of Good X and less of Good Y so that MU of good X declines and MU of Good Y increases till the point, Where\[\frac{M{{U}_{X}}}{{{P}_{X}}}=\frac{M{{U}_{y}}}{{{P}_{y}}}\] Or Difference between individual demand curve and market demand curve are:

Basis	Individual Demand Curve	Market Demand Curve
Meaning	It is a graphical representation of an individual demand schedule, depicting an inverse relation between price and quantity demanded by an individual.	It is a graphical representation of market demand schedule, depicting an inverse relation between price and quantity demanded by all the consumer in the market.
Slope of   the Curve	The demand curve is steeper.	The demand curve is flatter.
Graphical Representation