A comsumer consumes only two goods $X$ and $Y$ whose prices are Rs. 2 and Rs. 1 per unit respectively. It the consumer chooses a combination of the two goods with marginal utility of $X$ being $4$ and that of $Y$ also being $4$ , is the consumer in equilibrium? Give reasons. Explain what will a rational consumer do in this situation. Use Marginal Utility Analysis.

Open in App

Solution

According to the utility approach, a consumer reaches equilibrium where the following equality is met.
$\frac{M U_{x}}{P_{x}} = \frac{M U_{y}}{P_{y}}$
According to the given question
$\frac{M U_{z}}{P_{x}} = \frac{4}{2}$
$\frac{M U_{y}}{P_{y}} = \frac{1}{1}$
So, $\frac{M U_{y}}{P_{y}}$ is greater than $\frac{M U_{x}}{P_{x}}$ . Thus, to reach the equilibrium, a rational consumer would increase the $\frac{P_{y}}{P_{x}}$ of good $x$ .

Suggest Corrections

Similar questions

A consumer consumes only two goods X and Y whose prices are Rs. 2 and Rs. 1 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X being 4 and that of Y being 4, is the consumer in equilibrium? Give reasons. Explain what a rational consumer would do in this situation. Use marginal utility analysis.

A consumer consumes only two goods X and Y whose prices are Rs. 4 and Rs. 5 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 5 and that of Y equal to 4, is the consumer in equilibrium? Give reasons. What will a rational consumer do in this situation? Use utility analysis.

A consumer consumes only two goods X and Y, both priced at Rs. 2 per unit. If the consumer chooses a combination of the two goods with marginal rate of substitution equal to 2, is the consumer in equilibrium? Why, or why not? What will a rational consumer do in this situation? Explain.

Q. A consumer consumes only two goods