A consumer consumes only two goods X and Y- Marginal Utilities of X and Y are 3 and 4 respectively- Prices of X and Y are -8377-4 per unit each- Is consumer in equilibrium nbsp- What will be further reaction of the consumer nbsp- Give reason-

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Standard XI

Economics

Utility and Total Utility

A consumer co...

Question

A consumer consumes only two goods X and Y. Marginal Utilities of X and Y are 3 and 4 respectively. Prices of X and Y are ₹4 per unit each. Is consumer in equilibrium What will be further reaction of the consumer Give reason.

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Solution

Dear Student

Equilibrium states that consumer consumes a good in such a manner that price will be equal to marginal utility or satisfaction derived by consuming an extra unit of the good . So for good Y we see that marginal utility is 4 and price of each unit is also 4 . So there is equilibrium in this case but as we move to good X we see that marginal utility is 3 and price of each unit is 4 . So the satisfaction obtained by consuming an extra unit is lesser than the price paid for the unit . So the consumer will lower the consumption of good X . As the consumer will stop consuming X or consume it in lesser quantities the marginal utility will automatically rise and match the price of the good . So the consumer will be in equilibrium .

Regards .

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