A consumer consumes only two goods X and Y and is in equilibrium. Show that when price of good X falls,

Question

A consumer consumes only two goods X and Y and is in equilibrium. Show that when price of good X falls,

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.

Monjur Alahi

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2025-01-04 04:42

1 Answers

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Salim Ahmed Kawsar · Accepted Answer · 2023-02-05T15:29:48+06:00

Salim Ahmed Kawsar

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.

6 views Answered 2023-02-05 15:29