Q. 15.0( 2 Votes )

A consumer consumes only two goods X and Y and is in equilibrium. Explain the reaction of the consumer through utility analysis.

Answer :

Let the Marginal utility for good X = MUx


Marginal utility for good Y = MUy


Price of good X = Px


Price of good Y = Py


According to Utility analysis, consumer is in equilibrium when



Where, MUm = Marginal Utility of money


Now, Px falls,


And when Py falls,


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