question_answer

A consumer consumes only two goods X and Y. Marginal utilities of X and Y are 4 and 3 respectively. Price of X and price of Y is Rs. 3 per unit. Is consumer in equilibrium? What will be further reaction of the consumer? Give reasons.

Answer:

Marginal utility of X = 4

Price of X = Rs. 3

Marginal Utility of Y = 3

Price of Y=Rs. 3

\[Mux\div Px=4\div 3=1.33\]

\[MUy\div Py=3\div 3=1\]

No, the consumer is not in equilibrium and to reach the equilibrium level, the consumer should increase the consumption of good X.