A consumer consumes only two goods X and Y and is in equilibrium. Show

1.	A consumer consumes only two goods X and Y and is in equilibrium. Show that when price of good X falls, demand for good X rises. Use utility analysis.
Answer» According to the utility analysis, the consumer is in equilibrium when: MU_x/P_x=MU_y/P_y=M_um Now, given that P_x falls,then MU_x/P_x> MU_y/P_y Since per rupee MU_x is higher than per rupee MU_y the consumer will buy more units of X commodity and less of Y commodity.

A consumer consumes only two goods X and Y and is in equilibrium. Show that when price of good X falls, demand for good X rises. Use utility analysis.

Answer»

According to the utility analysis, the consumer is in equilibrium when:

MU_x/P_x=MU_y/P_y=M_um

Now, given that P_x falls,then

MU_x/P_x> MU_y/P_y

Since per rupee MU_x is higher than per rupee MU_y the consumer will buy more units of X commodity and less of Y commodity.