A consumer consumes only two goods A and B and is in equilicbrium . Price of good a falls . Show that it will lead to rise in dmand for good A . Use U

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A consumer consumes only two goods A and B and is in equilicbrium . Price of good a falls . Show that it will lead to rise in dmand for good A . Use U

A consumer consumes only two goods A and B and is in equilicbrium . Price of good a falls . Show that it will lead to rise in dmand for good A . 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

When consumer is in equilibrium :
`(MU_(A))/(P_(A))=(MU_(B))/(P_B)`
When price of good A `(P_(A))` falls , then
`(MU_(A))/(P_(A))gt(MU_(B))/(P_B)`
Since per rupee marginal utility of A `(MU_(A))` is now higher than per rupee `MU_(B)` , the consumer will divert expenditure from good B to good A. This raises demand for good A.