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A consumer consumes only two Goods X and Y. The Marginal Rate of Substitution is 2. Prices per unit of X and Y are Rs. 5 and Rs.4 respectively. Is 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 2>5/4 The consumer is prepared to pay more for one more unit of X than market demands. So, he will buy more of X and less of Y till MRS falts enough to be equal to Px/Py and consumer is in equilibrium again. |
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