Advertisements
Advertisements
Question
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 reason. What will a rational consumer do in this situation? Use utility analysis.
Solution
The consumer reaches equilibrium only if the following condition is satisfied
`(MU_x)/P_x = (MU_y)/P_y`
Given that
`MU_x/P_x = 5/4`
Here, `"MU"_x/P_x` is greater than `"MU"_y/P_y` the rational consumer would try to satisfy the condition by increasing the consumption of Good-X and forego the consumption of Good-Y.
APPEARS IN
RELATED QUESTIONS
A Consumer consumes only two goods X and Y. Marginal utilities of X and Y is 4 and 5 respectively. The prices of X and Y are Rs 4 per unit and Rs 5 per unit respectively. Is the consumer in equilibrium? What will be the further reaction of the consumer? Explain.
A consumer consumes only two goods A and B and is in equilibrium. Show that when price of good B falls, demand for B rises. Answer this question with the help of utility analysis
A consumer consumes only two goods X and Y. If marginal utilities of X and Y are 4 and 5 respectively, and if price of X is Rs 5 per unit and that of Y is Rs 4 per unit is the consumer in equilibrium? What will be further reaction of the consumer? Explain.
A consumer consumes only two goods X and Y both priced at Rs 3 per unit. If the consumer chooses a combination of these two goods with Marginal Rate of Substitution equal to 3, is the consumer in equilibrium? Give reasons. What will a rational consumer do in this situation? Explain
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.
A consumer consumes only two goods X and Y whose prices are Rs 5 and Rs 4 respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 4 and that of Y equal to 5, is the consumer in equilibrium? Why or why not? What will a rational consumer do in this situation? Use utility analysis
A consumer 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.
If equilibrium price of a good is greater than its market price, explain all the changes that will take place in the market. Use diagram.
Market for a good is in equilibrium. There is simultaneous “decrease” both in demand and supply but there is no change in market price. Explain with the help of a schedule how it is possible.
How does the equilibrium price of a ‘normal’ commodity change when income of its buyers falls? Explain the chain effects.
What are the conditions of consumer’s equilibrium under the indifference curve approach? What changes will take place if the conditions are not fulfilled to reach equilibrium?
From the following schedule find out the level of output at which the producer is in equilibrium, using marginal cost and marginal revenue approach. Give reasons for your answer.
|
Price per unit (Rs) |
Output (Units) |
Total Cost (Rs) |
|
8 |
1 |
6 |
|
7 |
2 |
11 |
|
6 |
3 |
15 |
|
5 |
4 |
18 |
|
4 |
5 |
23 |
Equilibrium price falls and equilibrium quantity rises when ______
Identify the correctly matched pair from Column A to that of Column B:
| Column A | Column B | ||
| (1) | Investment Multiplier | (a) | C + I + G + (X − M) |
| (2) | Marginal Propensity to Consume | (b) | `(ΔC)/(ΔY)` |
| (3) | Marginal Propensity to Save | (c) | `(ΔI)/(ΔY)` |
| (4) | Aggregate Demand | (d) | `(ΔS)/(ΔY)` |
Refer to the diagram given below and answer the questions that follow.
- What does the line AB represent? Why is the line AB negatively sloped? (2)
- At which one of the given points, D, E and F, will the consumer attain equilibrium? Explain. (2)
- Briefly explain why the consumer is not in equilibrium at the other two points. (2)
