A consumer consumes only two goods X and Y whose prices are Rs.2 and Rs.1 per unit.If the consumer chooses the combination of two goods with marginal utility of X being 4 and that of Y being 4, is the consumer in equilibrium? Give reasons. Explain what will be a rational consumer do in this situation. Use marginal utility analysis.

According to the utility approach, a consumer reaches equilibrium where the following equality is met.
$$\begin{gathered} \frac{M{U}_x}{P_x} = \frac{M{U}_y}{P_y} \\ \mathrm{According} \mathrm{to} \mathrm{the} \mathrm{given} \mathrm{question} \\ \frac{M{U}_x}{P_x} =\frac{4}{2} \\ \frac{M{U}_y}{P_y} =\frac{4}{1} \\ So, \frac{M{U}_y}{P_y} \mathrm{is} \mathrm{greater} \mathrm{than} \frac{M{U}_x}{P_x} . \mathrm{Thus}, \mathrm{to} \mathrm{reach} \mathrm{the} \mathrm{equilibrium}, \mathrm{a} \mathrm{rational} \mathrm{consumer} \mathrm{would} \mathrm{increase} \mathrm{the} \mathrm{consumption} \mathrm{of} \mathrm{good} y \mathrm{and} \mathrm{decrease} \mathrm{that} \mathrm{of} \mathrm{good} x. \end{gathered}$$




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