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A consumer consumes only two Goods X and Y. Marginal Rate of Substitution is 3 and per unit prices of X and Y are Rs. 4 and Rs.2 respectively. Is the consumer in equilibrium ? What will be the further reaction of the consumer ? Give reason. |
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Answer» The Consumer is not in equilibrium because : MRS> Px/Py or 3> 4/2 Since the consumer is prepared to pay more for X than market demands, consumer will buy more of X and less of Y till MRS decline enough to be equal to Px/Py and consumer reaches equilibrium. |
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