Answer :

a) Price of Good X is RS 4

Price of Good Y is RS 5


Total income is Rs 40.


The budget line equation is :


Price of Good X * X + Price of Good Y * Y = Total income


4X + 5Y = 40


b) Slope of budget line = Px/Py


Slope of budget line=


OR


If a rational consumer is consuming only two Goods X and Y, state her


likely behavior to attain consumer’s equilibrium if she faces a situation


Where


The main condition of attaining consumer’s equilibrium is the marginal utility of the last rupee spends on last good is the same.


● This means MUx/Px = MUy/Py.


● But, in this case, MUx/Px < MUy/Py.


● The marginal utility of the last rupee spends on good X is less than the marginal utility of the last rupee spends on good Y.


● To attain an equilibrium, the consumer must reduce the quantity of Good X and increase the quantity of Good Y.


● This will increase the marginal utility of Good X and reduce the marginal utility of Good Y.


● The consumer must continue to reduce the quantity of Good X and increase the quantity of Good Y till-


MUx/Px = MUy/Py


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