Question

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

Answer 1

`The consumer reaches equilibrium only if the following condition is satisfied

${\displaystyle \frac{{\text{MU}}_x}{P_x}=\frac{{\text{MU}}_y}{P_y}}$

Give that

${\displaystyle \frac{{\text{MU}}_x}{P_x}=\frac{5}{4}}$

${\displaystyle \frac{{\text{MU}}_y}{P_y}=\frac{4}{5}}$

Here ${\displaystyle \frac{{\text{MU}}_x}{P_x}}$ is greater than ${\displaystyle \frac{{\text{MU}}_y}{P_y}}$, the rational consumer would try to satisfy the condition by increasing the consumption of Good-X and forego the consumption of Good-Y.